Regardless of whether you're 25 or 55, saving for retirement is a wise financial strategy. Everyone will face retirement at some point, either by choice or necessity. Whether you are on track for retirement savings or need to play catch up, or you're a financial advisor who wants to give clients a leg up on preparing for their later years, these eight essential tips for retirement savings will put more money in your account.

Key Takeaways

  • Make the most of your retirement planning by taking advantage of employer-sponsored plans and company matches.
  • Consider claiming double plan contributions or a tax credit of your plan contribution.
  • Increase your savings through a backdoor Roth IRA.
  • You may save more if you move to a state with no state taxes.
  • Think about self-employment savings and even an health savings account.

1. Grab the 401(k) or 403(b) Company Match

If your workplace offers a retirement plan and a company match, you should contribute up to the amount that the company kicks in. For the greatest retirement benefit, contribute up to the maximum amount allowed by law to your retirement savings plans. Start now for the greatest financial benefit.

Here's an example to show how it works. Let’s say José earns $50,000 per year. His company contributes up to 5% of his salary, matching every dollar he puts into his workplace retirement account. By investing at least $2,500 into his 401(k), he automatically gets a $2,500 bonus from his employer, along with important tax benefits. If José doesn’t add his 5% to the pool, he misses out on free money.

2. Claim Double Retirement Plan Contributions

A little-known retirement savings opportunity allows some teachers, health care workers, public sector, and nonprofit employees the opportunity to contribute twice as much to retirement plans.

These workers can add $19,500, the maximum amount for 2021 (unchanged from 2020) to 403(b), or 457 retirement plan accounts. That’s a total tax-advantaged savings amount of $39,000 in one year.

3. File for Uncle Sam’s Retirement Savings Credit

If you are a lower- or middle-income taxpayer, you may claim a tax credit for up to 50% of your retirement plan contribution. If you are married and filing jointly with an adjusted gross income (AGI) of $66,000 or less (2021), and you contribute to a qualified retirement plan, you may be eligible for a tax credit. The income limits for heads of household is $49,500, for single filers and, for married persons filing separately, is $33,000.

The maximum credit for 2021 is $2,000 for married couples filing jointly and $1,000 for single filers (applied against the maximum contribution amounts: $4,000 for married couples filing jointly and $2,000 for single filers).

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8 Essential Tips For Retirement Saving

4. Use the Backdoor Roth IRA to Increase Savings

For 2021, the AGI phase-out contribution range for Roth IRAs for married couples filing jointly is $198,000 to $208,000 and for single taxpayers and heads of households is $125,000 to $140,000.

If your current income is too high and makes you ineligible to contribute to a Roth IRA, there’s another way in. First, contribute to a traditional IRA. There is no income ceiling for contributions to a non-deductible traditional IRA, although there is a limit to what can be contributed. The IRS caps the contribution limit to $6,000 or $7,000 if you are 50 or over, or the taxpayer's total taxable compensation if it was less than the stated dollar amounts.

After the funds clear, convert the traditional IRA to a Roth IRA. That way the funds can compound for the future and be withdrawn tax-free, as long as you meet the withdrawal guidelines.

“I have high-income clients who open traditional IRAs and make non-deductible contributions on an automatic monthly basis to the maximum allowable amount," says Alyssa Marks, lead advisor at Trifecta Financial.

Marks adds the following:

"At the end of each quarter, we submit a full conversion request so that the entire IRA balance gets converted to their Roth account. By converting quarterly, there is not a lot of time for taxable gains to accrue in the traditional IRA. So the tax implication of the conversion is minimal for the client. And, they’re saving additional retirement dollars to compound and withdraw tax-free later on."

5. Retire in the Right State

Alaska, Florida, South Dakota, Wyoming, Texas, Nevada, and Washington all boast the fact that they have no state income taxes. Be aware that New Hampshire and Tennessee don't tax earned income, but they do tax dividends and interest.

Fortunately for retirees, most states don’t tax Social Security. Before packing up and moving, evaluate all of the taxes in your proposed new home state.

6. Self-Employed Retirement Savings

Even if it’s just a side job, self-employment income allows you to contribute to a solo 401(k) and a Simplified Employee Pension (SEP) plan. You can contribute up to 25% of your net self-employment income, up to $58,000 (the 2021 limit) with a SEP. If you’re under age 50, you can invest up to $19,500 (2021) in a Solo 401(k) in the role of employee.

The catch-up contribution for employees age 50 or older is $6,500 in 2021 (unchanged from 2020). There’s also an opportunity to contribute more to the solo 401(k) in the role of the employer.

7. The Health Savings Account (HSA)

With health care costs growing and the proliferation of high deductible health plans (HDHPs), the health savings account (HSA) is a golden retirement planning opportunity. This tool can not only be used to pay for health care expenses but it can also be used to squirrel away additional funds for retirement.

The individual or employer contributes up to $7,200 for a family or $3,600 for an individual in 2021. The contributions are 100% tax-deductible, and funds unused for medical expenses may continue to be invested and grow over time. Those over age 55 can sock away an additional $1,000 per year.

Health savings accounts are the only savings vehicle that is tax-deductible on the way in and potentially tax-free on the withdrawal if used for qualified medical expenses," says Robert M. Troyano, CPA, CFP, founder ,and managing partner at RMT Wealth Management. "These accounts should be funded to the maximum since participants are almost certain to have some out-of-pocket medical expenses currently or in the future."

What’s more, “once you reach age 65, any assets inside the HSA account may potentially be used for anything, not just health care-related expenses,” says Mark Hebner, founder and president of Index Fund Advisors, and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

The government allows you to contribute an extra $6,500 if you're over 50 to accelerate your retirement savings in an employer-sponsored plan.

8. Benefit From Getting Older

If you’re over age 50, the tax system is your friend. Retirement plan contribution limits are raised, giving the older investor a chance to accelerate their retirement savings. You’re allowed to increase contributions to both traditional and Roth IRAs to $7,000 for 2021.

Finally, the government rewards you with the opportunity to contribute an additional $6,500 to the employer-sponsored retirement plan (e.g., 401(k), 403(b), 457) for a maximum amount of $26,000 ($19,500 maximum salary deferral amount + $6,500 catch-up contribution).

The Bottom Line

Automate your retirement savings and have the money transferred from your paycheck to any and all of your retirement accounts. The cash you can’t get your hands on is more money for your retirement nest egg. Take advantage of the tax-saving retirement opportunities for which you qualify. By starting now and maximizing your retirement account dollars, you secure your financial future.