Make the most of your tax-advantaged retirement accounts

OK, so maybe tax season isn’t your favorite time of year. But there’s a silver lining to all the upcoming filing stress – it may be a great opportunity to think about making the most of your tax-advantaged retirement accounts to help you save for the future. Why’s that? Because any contributions (big or small) to these accounts can have a significant impact over time, regardless of your income level.

When you invest your money in a tax-deferred account such as an IRA or 401(k), you don’t pay taxes on any investment growth or income while your money is in the account. Since you aren’t taxed on the money year after year, the impact of compounding can be greater, giving your money the potential to grow more.

Here are some steps you can take to take advantage of opportunities to save and potentially grow your money. Since each situation is different, you should consider speaking to a tax professional before making changes.

Take advantage of a workplace retirement plan

If you have a workplace retirement account, such as a 401(k), revisit your contributions and see if there’s room to increase how much you’re putting away for the future.

Not sure how much to contribute? Industry experts recommend saving at least 15% of your income (pre-tax) toward retirement (this can include any match that your employer contributes to your workplace retirement plan). If this feels out of reach, just start where you can. You can increase your savings over time.

If your employer offers a match, consider contributing at least enough to maximize it.

Make the most of an individual retirement account (IRA)

Making your contributions earlier in the year gives you more time to benefit from potential investment growth and compounding. Also, there is no longer an age limit for making a traditional IRA contribution.

Be thoughtful about Roth and traditional IRAs

Are you eligible to contribute to both a Roth and a traditional IRA? If so, consider the differences and if it makes sense for you to build a mix of retirement assets over time.

Wondering where to start? Typically, if you are young and pay taxes at relatively low rates, you may want to consider directing your annual contributions to a Roth IRA. As you move into higher tax brackets, it may be a good time to think about opening a traditional IRA. In general, getting to retirement with a mix of traditional and Roth IRA savings may give you flexibility and more control when managing your taxes.

Consider simplifying your financial picture

Have you recently changed jobs or do you have an old 401(k)? If you contributed to a retirement plan at your old job and now you’re working at a new job, you likely have the following three options: keep your money in your former employer's plan, roll that money over to your new employer's plan or move it into an IRA. You could also withdraw the money entirely, but then you may incur an early withdrawal penalty in addition to other tax consequences. If you have multiple IRAs of the same type (two non-inherited traditional IRAs, for example), you can also look into consolidating the assets into one account.

By consolidating your retirement accounts, you can help simplify your retirement picture, keep track of your holdings and more carefully align your investment strategies with your retirement goals. Consider your investment choices, fees and expenses to decide if consolidating your accounts makes sense for you.

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