If you earn a higher than average income or is you have significant assets, proper planning is critical. Whether you are an employee, self-employed, or retired, good old “Uncle Sam” would love to get his hands into your wallet. Tax savings and strategic planning become an important component of the retirement puzzle.
If you’re still working, then the earlier you put these plans in place, the better.
Here are just a few options you may have:
Grab those matching funds. Employers often offer matching retirement funds to employees, but many workers are unable to take advantage of the full match. That’s not the case for higher earners, who can reap the entire amount of the match. If you aren’t receiving your matching funds, you’re basically saying no to free money!
Hang onto more of your end-of-year bonus. If you receive a sizable bonus at the end of the year, a large chunk of it could be snatched due to taxes. It could even bump you into a higher tax bracket! But you can keep your of your money by diverting that bonus into your tax-deferred retirement plan, assuming you haven’t already maxed out on contributions for the year.
Benefit from a Roth IRA. Higher earners often cannot contribute to a Roth IRA, but you can get around that rule by contributing to a non-Roth IRA and then converting it into a Roth account. You will be happy you made this move when you reach retirement, and you can benefit from tax-free distributions from a Roth account.
Purchase an annuity. You can’t take a tax deduction for contributing to an annuity contract, but all of your contributions grow with taxes deferred until you begin taking distributions in retirement. This can be a great way to invest in your future, without subjecting yourself to additional investment gains taxes each year during your career.
Before making any big decisions about your retirement accounts, consult with your tax professional and financial planner. The rules for many tax maneuvers are complicated, so you will need expert guidance to ensure you reap the maximum benefits of any decisions you make.
