Maximizing Retirement Savings Beyond Your 401(k)

Most people think of their 401(k) (or other workplace retirement plan) when they think of retirement savings. However, there are several other options for growing your retirement savings in a tax-efficient way. Today I’d like to go over two savings vehicles you may not be leveraging yet - your HSA, and a Backdoor Roth IRA. 

HSA

Your HSA, or Health Savings Account, is an excellent vehicle to grow your savings for medical expenses in retirement. You can open an HSA when you have a High-Deductible Health Plan (HDHP) as your insurance. Unlike a Flex-Savings Account, the funds in your HSA roll over from year to year. So, you can let them accumulate up until you retire. In addition, the HSA will always be your account, regardless of any changes in employment.

An HSA is a tax-advantaged savings account, which means you’re able to save for medical expenses while lowering your taxable income. The current savings limits for an HSA is $3,500 for a single individual and $7,000 for a family, and catch-up contributions of an additional $1,000 for those over age 55. The funds in your HSA can cover qualified medical expenses both now and in retirement. These include common medical expenses such as:

  • Physical therapy
  • Eyeglasses
  • Walkers and canes
  • Wheelchairs

And more! To read the full list of IRS-qualified medical expenses, you can read the full list on IRS.gov. If you start to save now, you can leverage the funds in your HSA for medical expenses in retirement, too. They can be put toward copays and deductibles, or even Medicare and Long Term Care Insurance premiums.

Backdoor Roth IRA

Another often-overlooked retirement savings solution is a Backdoor Roth IRA. Most people have heard of a Roth IRA, but as they get closer to retirement, they feel they’re unable to contribute to one because they earn over $193,000 (married filing jointly) or $122,000 (single, head of household). However, by leveraging a Backdoor Roth IRA, you can still funnel money into this tax-advantaged account and diversify your retirement savings location in retirement.

A Backdoor Roth IRA is an IRS-sanctioned way to migrate funds from a Traditional IRA to a Roth IRA, even if you make over the earning limit. You can convert contributions to your Traditional IRA or 401(k) to a Roth IRA. 

You will owe taxes on this income in the year you perform the conversion or rollover, but you’ll also be able to let it grow tax-free as you head into retirement. This can give you the opportunity to pay taxes now when your income is theoretically lower than what it will be when you retire. Keep in mind that you can only make one rollover or contribution to your Backdoor Roth IRA a year. There is some complexity to this process, so be sure to consult your tax advisor prior to making these contributions.

Saving for Retirement?

You have more options to grow your retirement nest egg than just your workplace retirement account. Do you need help leveraging all of your options to save for retirement? Reach out! I’d love to help you create a retirement savings strategy that helps you to grow your nest egg while diversifying your asset location. 

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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