Making the Most of Your Retirement Planning

As April 18 approaches, most Americans turn their sights to reducing their tax burden as much as possible. For many that means making contributions to retirement accounts. The general wisdom, of course, is to make the maximum contribution Ė but for some, thatís not possible. The question becomes, is there a point to contributing if you canít max out?

The answer is yes, absolutely. No matter how small a contribution you make, the compounded growth on your tax- deferred dollars can make an impact.

elderly couple on a scooter

Of course, the more you can contribute, the more youíll earn Ė so put as much into your IRA as you can each year, even if you canít reach the maximum. Following are some other tips that can help you make the most of your annual retirement contributions.

Spread the wealth
Many people think if they participate in a company-sponsored 401(k) plan they canít also contribute to an IRA. Thatís not the case at all. To reach your retirement goals faster, be sure you are contributing to both your 401(k) and an IRA. If youíre self- employed, talk to a Financial Advisor about other options available to you Ė like a Self-Employed 401(k) plan Ė that can help you save even more.

Contribute early Ö and often
We all know the younger you are when you start putting money into retirement accounts, the more growth youíll see. The same strategy applies to your annual contributions as well. Instead of waiting until April 15 of 2018 to make your 2017 contribution, for instance, do it now. If you havenít made your 2016 contribution yet, you may want to consider making 2016 and 2017 contributions at the same time.

By contributing as early in the year as possible, youíll gain additional months Ė maybe even an entire year Ė of compounded growth. If you canít make your maximum 2017 contribution all at once, set up a savings plan and try to make regular monthly or quarterly contributions.

Take care of your nonworking spouse
If youíre married and file jointly, you can make an IRA contribution for you and your spouse if he or she hasnít earned any income. Consider this: if youíre able to contribute the maximum for yourself - $5,500 for 2017, double that by contributing the maximum for a nonworking spouse. Again, if you havenít made your 2016 contribution Ė you may want to make this double contribution for 2016 and 2017 at the same time.

Playing catch-up can have an impact
If youíre over 50, you can add an extra $1,000 to your contribution each year. That means from 50 on you can contribute of $6,500 to your IRA. Itís important to note that once you turn 70½, you can no longer contribute to a traditional IRA. While there are no age limits on Roth IRA contributions, you do need to meet IRS income eligibility rules so be sure to check with your Financial Advisor.

By the way, you can make catch-up contributions of up to $6,000 to your 401(k) as well.

Contribute and convert for added tax benefits
Both traditional and Roth IRAs have tax advantages, just at different stages. With a traditional IRA, your contribution is tax deductible Ė so you avoid taxes when you put the money in and are taxed on withdrawals. Roth IRAs, on the other hand, give you no upfront tax break, but you pay no taxes when you take money out in retirement.

The problem for some is that they earn too much to contribute to a Roth IRA. If you fall into this category and donít have an existing IRA, you may be able to make a contribution to a traditional IRA and then quickly convert it to a Roth IRA. When you convert, your tax burden is only on any investment gains from the time you made the contribution until you converted it to a Roth IRA.

This works best when you have no other pre-tax IRAs. Thatís because your earnings and previously untaxed contributions in all your pre-tax IRAs will be considered when calculating the amount of taxes due at the time of conversion. Thatís not to say this strategy canít be used if you have existing pre-tax IRAs Ė but the rules around Roth IRA conversions are complex, so you should consult an expert.

Give your kids and grandkids a head start
As noted, itís never too early to start saving for retirement. You can help the next generation jumpstart their savings by making contributions on their behalf once they start working Ė even if thatís part-time or after school jobs. The maximum amount you can contribute into an IRA for a child or grandchild will be limited to the income they earn each year, as reported on their W-2 form. Just be aware that any money you provide to help fund an IRA for a child or grandchild is still considered a gift, and therefore subject to gift tax rules. Your Financial Advisor can give you more information on gifting strategies and their tax implications.

Engage a Financial Advisor
Before making any decisions, talk to your Financial Advisor. If you donít have one Ė itís in your best interest to find one who can help you save for the retirement you want. He or she can help you set goals and look at your overall retirement strategy. For instance, you may want to consider consolidating retirement accounts Ė especially if you have one or more 401(k) or retirement savings accounts from past employers. A Financial Advisor can help you set you on the right path an