Deposit Retirement Money Into a Roth AccountOne of the best ways to save for retirement is to have the money automatically deposited into your employer’s retirement plan where they offer matching contributions. This method enables you to build your retirement savings faster.
It would be even better if the employer offered a Roth 401(k) or a Roth IRA account, but not all employers offer them. Contributing money to a traditional 401(k) or IRA will let you take home more money now, but you will have to pay taxes when you withdraw the money—when you will likely be in a lower tax bracket.
Depending on how much money you intend to contribute to a retirement account annually will determine whether a Roth IRA or a Roth 401(k) is better. The contribution limit on a Roth IRA in 2023 is $6,500 unless you are 50 or older—then you can contribute up to $7,500. The contribution limits for a Roth 401(k) are much higher—$22,500 per year, but if you are 50 or older, you can contribute an additional $7,500.
Make a Roth ConversionYou can convert money from other retirement accounts to a Roth account. When you make a Roth conversion, you must pay taxes on all converted money. To avoid a massive tax bill all at once, you can convert some of your money over several years. All conversions and contributions must still follow the maximum allowable contribution limits.
Move to an Income Tax-Free StateAnother way to get a boost in your retirement income is to move to a state that does not tax retirement income. Some states will even tax your Social Security income, but others may only tax income received from a 401(k) or individual retirement account (IRA), and some will tax pension payments. Income from brokerage accounts may also be tax-free.
Open a Health Savings AccountA health savings account (HSA) is a health insurance policy with retirement benefits added. Money contributed to the account is tax-deductible, and withdrawals made for medical applications are tax-free. Unused money is turned over into the following year, and the account builds interest. After you turn 65, you can withdraw the money for any purpose without penalties.
You can benefit from an HSA if you have maxed out your contributions to other retirement accounts. Contribution limits to an HSA in 2023 are $3,850 (including any employer contributions) for an individual or $7,750 to cover your family. In 2024, the contribution limits are $4,150 for individuals and $8,300 for families. People over 55 can contribute an extra $1,000. For 2023, you can make contributions to an HSA until tax time—April 15, 2024.
Life Insurance PoliciesAlthough it will not generate nearly as much interest as other retirement accounts, you can use a life insurance policy to generate non-taxable income in retirement. You can buy as big a whole-life policy as you want, let it build interest for years, and then withdraw some of the money or cash it out (cancel it) when needed.
If you should die before withdrawing any or all of it, your beneficiaries can use the money for their needs or as an inheritance. Withdrawals or cash-outs from life insurance policies are tax-free.
You can find these and other tax-free income methods for your retirement by talking to an estate planner or tax advisor. The sooner you make any necessary changes and put your retirement money in the right places, the more money you can save.