Two of the most common New Year’s resolutions are to get fitter and save more money. These resolutions are very difficult to keep because the goals are not specific, and it’s hard to keep track of them. It’s better to make more specific goals like saving an extra $2,000 for retirement this year. Here are some ways all of us can save more for retirement this year. You’re on your own for the fitness resolution. I will be struggling with that one, too.
Increase 401(k) contributions. For 2014, the 401(k) contribution limit remains $17,500 for people under 50. According to a Vanguard study, only 11 percent of 401(k) participants contribute up to the limit. If you are among the majority of 401(k) participants, then there is an easy way for you to save more for retirement. The economy continues to improve, and hopefully you’ll get a raise this year. Once you receive notice of a pay increase, you can log on to your 401(k) plan and split this increase with your retirement account. This way you won’t see a decrease in your take home pay. The raise will be a little smaller than you expected, but you will have met your goal of saving more for retirement.
It will be more difficult to save more if you don’t see any raises this year. In that case, it’s probably time to figure out a way to generate additional income through more education, a job change or even a side job.
Contribute to a Roth IRA. If you already maxed out your 401(k) contribution, then consider saving more in a Roth IRA. A Roth IRA isn’t tax deductible, but you generally won’t have to pay tax on the gain when you withdraw the money in retirement. For 2014, the Roth IRA contribution limit is $5,500 for people under age 50. The Roth IRA is easily my favorite retirement account, especially after a great year in the stock market. You can buy and sell stocks without having to worry about capital gains taxes, assuming you don’t plan to withdraw the money before retirement.
Self-employment options. If you are self-employed, then there are a couple of options that can really boost your retirement savings. You can contribute as much as 25 percent of your net earnings from self-employment or up to $52,000 in 2014 to a simplified employee pension. Another option is the solo 401(k), to which you can contribute $17,500 via a salary deferral. Of course, you need a very successful business to be able to save this much.
Catch-up contributions. If you are 50 or older, then you can contribute an extra $5,500 to your 401(k) and an extra $1,000 to your Roth IRA. People who turned 50 recently should take a look at their retirement saving to see if they can increase it as they approach retirement.
Invest for passive income. It’s best to take advantage of the tax-advantaged accounts available to people who save for retirement. But another option for those near retirement is to set up passive income streams:
Saving more for retirement is a great New Year's resolution, but you need to get started on it right away. The longer you wait, the more difficult it will be to save more. If you are not maxing out your 401(k) contributions, then you should increase it a little bit right now. A 1 percent increase is barely noticeable, and you’ll be done with one goal this year, no further exertion required.
Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.