Independently saving for retirement is important. Without savings of your own, you’ll risk falling behind on your bills as a senior — especially since Social Security won’t provide enough income for you to live on. If you don’t have access to an employer-sponsored 401(k), you may be housing your savings in an IRA. If so, make sure to avoid these mistakes in the coming year.
1. Not taking advantage of catch-up contributions
If you’re under 50, you’re limited to saving $6,000 in an IRA next year. If you’re 50 or older, though, you get a $1,000 catch-up that raises your limit to $7,000. Take advantage of this option if you’re behind savings-wise and feel your nest egg needs a boost. If you take a close look at your spending, you may find that eking out an additional $1,000 over the course of a year is more doable than you think.
2. Not funding a Roth IRA
With a traditional IRA, you get an immediate tax break for putting money into your account. With a Roth IRA, there’s no upfront tax break. However, Roth IRAs offer a number of key perks:
It pays to consider a Roth IRA despite having to wait until later in life to reap some of those benefits.
The only catch is that higher earners are barred from contributing to a Roth IRA directly. In 2021, you can’t fund a Roth if your income exceeds one of these thresholds:
- $140,000 for single tax filers and heads of households
- $208,000 for married couples filing jointly
- $10,000 for married couples filing separately
However, you’ll still have the option to contribute to a traditional IRA and then convert it to a Roth afterward. You’ll pay taxes on your conversion, but you’ll then get to enjoy the aforementioned benefits.
3. Not checking up on your investments
Unlike 401(k)s, which generally limit you to a handful of funds, IRAs come with a huge range of investment options. You could load up on index funds or buy individual stocks — the choice is yours. Pay attention to how your IRA is invested. The wrong mix could limit your ability to generate returns or expose you to undue risk.
When assessing your IRA investments, you’ll want to look at:
- Diversity: Are you invested in a number of different market segments?
- Performance: How well are your investments doing compared to how the broader market is doing?
- Risk: Are you invested appropriately for your age, or is your portfolio too conservative or aggressive?
Check your investments several times throughout 2021.
The better you manage your IRA, the more retirement wealth you stand to grow. Avoid these mistakes in the coming year so you can close it out with no regrets.