5 Tricks to Maximize Your Retirement Savings in the New Year

The start of a new year is an opportune time for investors to evaluate their retirement savings strategy and make updates if necessary. Making the most of your retirement contributions today will allow you to spend more in retirement or retire sooner if you choose. As you look at your retirement strategy, consider these five tricks that can help maximize your savings.

1. Update your automatic payroll contributions

The employee contribution limits on 401(k) and similar employer-sponsored retirement plans increased to $20,500 in 2022. Additionally, HSA limits increased to $3,650 for individuals and $7,300 for families.

If you were already maxing out your contributions to those accounts in 2021, you can increase your payroll deductions in 2022 to save even more. If you weren’t already maxing out the limits, you should still try to increase your savings. A good goal is to increase your payroll deduction percentage by one percentage point every year until you reach 10% to 20% of your salary.

Making small changes every year usually has minimal impact on quality of life. That’s especially true if you get raises larger than the increase in your automatic contribution.

2. Front-load your savings

You may have heard the mantra “time in the market beats timing the market.” Indeed, while stock values go up and down all the time, over the long run, prices go up. The more time you have your money invested, the more money you’ll end up with over the long run.

You can maximize your time in the market by front-loading your retirement savings. You’re eligible to contribute up to 100% of your payroll to your 401(k). Contributing as much as you can afford early in the year and maxing out your contribution limit will lead to a great 401(k) balance at retirement over time. Be mindful, however, that you may not receive your full 401(k) match with this method.

You can also front-load an IRA. You can deposit up to $6,000 in an IRA on January 1 if you’re so inclined. You’ll have to make sure you earn at least $6,000 in income during 2022, but you don’t have to have earned that much until December 31.

3. Get your full 401(k) match

If you’re not getting your full 401(k) match from your employer, you’re missing out on a big part of your compensation. While a few percentage points of your salary may not sound like much, the numbers add up over time.

If you’re unsure of what your 401(k) match benefits are, contact your HR department and ask. They’ll be able to adjust your automatic contributions to the minimum amount necessary to get the match. If you can, contribute even more than that.

4. Be mindful of fees

Fees can really cut into your retirement savings. If you’re saving primarily in a 401(k), you may want to dive into the fees associated with the account, including administrative and investment management fees, as well as the expense ratios on the mutual funds and ETFs available in the plan. If the fees are substantial, you might consider contributing less to a 401(k) and more to an IRA with low or no fees.

If you left behind an old 401(k) at an old job, you might want to roll over the assets in that plan to an IRA. That could save you a lot of money on fees over the life of the investments.

Finally, evaluate your current investments and alternative options. You may be paying high expense ratios for a managed target-date fund when an ETF version would accomplish the same goal at a fraction of the price.

5. Consider a self-employed retirement plan

If you have a side hustle that generates even a modest amount of income, you’re eligible to open a self-employed retirement plan. The two most popular options are a SEP IRA and a solo 401(k).

Even if you have a 401(k) at your main job, you might still be able to use a solo 401(k) for your self-employment income. You can contribute up to one-quarter of your net self-employment compensation to a solo 401(k) or SEP IRA, with very high contribution limits.

Additionally, you can contribute up to $20,500 to a solo 401(k) as an employee, but that amount is reduced if you also contribute to a 401(k) at another job. Total contributions to a solo 401(k) may also be capped by your total self-employment compensation.

If you want to maximize the amount you save in tax-advantaged accounts, a self-employed retirement plan can add quite a bit in additional savings capacity. Combined with the above tips, you’ll be well ahead of the curve when it comes to saving for retirement.

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