This Is the Average Tax Refund This Season — and How You Can Put It to Great Use
It's important to make the most of a tax refund. Read on to see how.
A lack of retirement savings is a serious concern for millions of Americans with close to seven in 10 people concerned they won’t have enough saved for their later years.
Unfortunately, while many people want to save more, doing so can be difficult. That’s because it’s hard to sustain sacrifices over your lifetime to boost your retirement investing.
The good news is, there are ways to save more without impacting your lifestyle. Here are four of them.
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1. Take advantage of any employer-matching funds
If you have a company 401(k) that offers matching contributions, taking advantage of those is the easiest way to boost your retirement savings without big lifestyle changes. After all, your employer is providing the extra money.
Of course, you do have to make contributions in order for them to be matched, and you should always aim to invest enough to earn the full amount. If your employer matches 50% of contributions up to 4% of your salary, and you make $60,000, you’d need to contribute $4,800 — but by doing so, you’d get another $2,400 absolutely free. That’s a lot of extra money with no sacrifice on your part.
2. Claim all your tax breaks
You can also get free money from Uncle Sam to effortlessly boost your retirement savings.
Investing in a tax-advantaged account such as a 401(k), IRA, or HSA enables you to reduce the cost of contributions and put away more money without seeing a big decline in take-home pay. If you make a $1,000 contribution and are in the 22% tax bracket, it could cost you just $780.
If you’re eligible, you can also claim the Saver’s Credit, which is worth up to $2,000 for married joint filers or up to $1,000 for single filers. The Saver’s Credit entitles you to a tax credit equaling 10%, 20%, or 50% of retirement contributions up to $2,000 for singles or $4,000 for married joint filers (the specific amount depends on your income).
A tax credit reduces your tax bill on a dollar-for-dollar basis. If you’d have otherwise owed $2,000 in taxes and get to claim a $1,000 Saver’s Credit, your bill goes down to $1,000. That makes it much easier to save more for retirement without big lifestyle changes.
3. Invest your windfalls
Throughout the year, chances are good you’ll get at least some money from outside of your regular paycheck. This could be from a bonus at work, a tax refund, or a cash gift, for example. When cash comes in that you aren’t expecting, put it right into a retirement account.
This is a little harder to do if you’re investing in a 401(k) since you need to have contributions taken out of your paycheck. But if you have access to an IRA, you can effortlessly move the money into it as soon as the funds come your way.
4. Save your raises
Finally, when you get a salary increase, divert the entire amount directly to your retirement savings. If you do this before you get even one bigger paycheck, you won’t have to make any lifestyle changes, because you’ll already be used to living on what you currently earn.
Taking these steps could potentially help you add thousands of extra dollars to your retirement accounts over time. And the good news is, you don’t need to increase your savings much to have a big impact. In fact, even an extra $1,000 invested over your career could add more than $320,000 to your nest egg.
Get started with as many of these steps as you can today, so you can supercharge your retirement savings without major lifestyle changes.
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