30:["$","$L31",null,{"category":"$32","relatedArticles":[{"id":"cG9zdDoyNjQ4Nzk=","databaseId":264879,"postId":264879,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1323,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ3NA==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19474,"categoryId":19474,"link":"https://smartasset.com/planning-for-retirement/articles","name":"Retirement Planning","postCount":{"pageInfo":{"offsetPagination":{"total":571,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"planning-for-retirement","ancestors":{"nodes":[{"name":"Retirement","slug":"retirement","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Retirement","id":"dGVybTo5Mw==","slug":"retirement","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$33","date":"2024-10-10T13:12:22","excerpt":"

Choosing the right retirement withdrawal strategy can stretch your savings throughout your retirement years. Effective withdrawal strategies provide a structured way to balance your income needs while preserving your retirement savings. A financial advisor can work with you to create a strategy for your retirement plan. Why It’s Important to Choose a Retirement Withdrawal Strategy […]

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","

Why It’s Important to Choose a Retirement Withdrawal Strategy

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The right retirement withdrawal strategy can provide a steady income stream while preserving the longevity of your assets. This allows you the stability to maintain your desired lifestyle and the flexibility to adapt to changes in the market or your personal circumstances. A well-thought-out strategy can also help you to minimize your taxes in retirement and ensure you comply with required minimum distributions (RMDs), reducing the risk of costly penalties. Without a clear plan, you risk spending your retirement savings too quickly, leaving you without enough resources to cover living expenses, healthcare costs or unexpected financial emergencies.

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4 Retirement Withdrawal Strategies Can Stretch Your Savings

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Here are four common withdrawal strategies that can help make your savings last for a more comfortable retirement.

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4% Rule

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How does it work? The 4% rule is a popular retirement withdrawal strategy that involves withdrawing 4% of your total retirement savings during your first year of retirement. In subsequent years, you adjust the withdrawal amount for inflation, ensuring that your spending power remains consistent. This rule was developed based on historical market performance and is designed to help retirees avoid depleting their savings over a 30-year period.

","

Who should use it? The 4% rule works well for retirees who have a moderate risk tolerance and are comfortable maintaining a diversified investment portfolio. However, be prepared to adjust your spending during periods of extreme market volatility.

","

Fixed-Dollar Strategy

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How does it work? The fixed-dollar strategy involves withdrawing a specific, predetermined amount from your retirement savings each year, regardless of market performance. This approach offers simplicity and predictability, making it easy to plan your annual budget. However, the fixed-dollar amount doesn’t account for inflation, which may decrease your purchasing power.

","

Who should use it? This strategy is best suited for retirees with stable income from pensions or Social Security who want a predictable supplement from their savings.

","

Total Return Strategy

","

How does it work? The total return strategy focuses on maintaining a diversified investment portfolio that creates an income stream in retirement through a combination of interest, dividends and capital gains. Retirees withdraw a certain percentage based on their portfolio’s total returns, adjusting the amount each year based on market performance. This strategy is more flexible and can help extend the life of your savings, but it requires active management and a higher risk tolerance.

","

Who should use it? It’s ideal for retirees who are comfortable with market fluctuations and are willing to adjust their withdrawals in response to investment performance.

","

Bucket Strategy

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How does it work? The bucket strategy divides your retirement savings into three separate “buckets” based on time horizons: short-term, mid-term and long-term. The short-term bucket contains cash or low-risk investments to cover immediate expenses, while the mid-term and long-term buckets have higher growth potential. And, as you draw down funds from the short-term bucket, you replenish it with gains from the other buckets.

","

Who should use it? This strategy provides stability and growth potential, making it suitable for retirees who want to balance income needs with the potential for long-term investment growth.

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How to Choose the Right Retirement Withdrawal Strategy

","

","

When it comes to choosing the right retirement withdrawal strategy, it can help to consider the factors that impact your financial needs and goals, such as:

","$45","

Bottom Line

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","

Selecting a retirement withdrawal strategy is an important step that could help your savings last a lifetime. Make sure to prioritize your needs, like housing and healthcare, before wishlisting things like hobbies and vacations. Balancing your financial needs with your risk tolerance and different withdrawal strategies can help you develop a sustainable plan.

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Tips to Help You Save for Retirement

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Photo credit: © iStock/Jacob Wackerhausen, © iStock/jeffbergen, © iStock/svetikd

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Most 401(k) plans invest in mutual funds, stocks, bonds, and other financial instruments, but you can also use these funds to invest in real estate. Real estate investing can diversify your retirement savings and potentially boost returns. To invest in real estate with a 401(k), you need to follow specific rules and choose the right […]

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A financial advisor who specializes in real estate investments can work with you to identify investments and manage them.

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Understanding 401(k)s

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401(k) plans are employer-sponsored retirement accounts that allow employees to contribute a portion of their salary on a pre-tax or, in the case of a Roth plan, post-tax basis.

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Most employer-sponsored 401(k) plans are limited to traditional investment options like stocks, bonds and mutual funds, and they generally do not allow for direct investment in real estate.

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However, a limited number of 401(k)s may allow you to invest in real estate investment trusts (REITs). This can be done if your plan offers mutual funds or ETFs that include REITs as part of your investment options.

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If you want to invest directly in individual REITs or more specialized real estate assets, you would need a self-directed 401(k) plan, which would offer you greater flexibility in choosing specific investments beyond the typical options that are provided by most 401(k) plans.

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How to Use a Solo 401(k)

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Another option for real estate investing with a 401(k) is with a self-directed 401(k) plan, which may be available through a solo 401(k) or individual 401(k). These plans are designed for self-employed individuals or small business owners with no full-time employees other than themselves and their spouses. However, even if you only generate a portion of your income from self-employment, you can set up a solo 401(k).

","

To set up a self-directed solo 401(k), you’ll need to establish the plan with a provider that offers self-directed options, as not all financial institutions will support real estate investments within a 401(k). Once the account is established, you can make contributions almost exactly as you would any other 401(k) plan. One positive difference is that total contribution limits for a solo 401(k) are typically higher than those for traditional 401(k)s (as you contribute as both the employee and the employer)..

","

With a self-directed solo 401(k), you can use the funds to invest in various types of real estate, including rental properties, commercial real estate, land and even tax liens. However, it’s important to understand the rules and regulations governing these investments.

","

For example, the IRS prohibits certain transactions within a solo 401(k), such as purchasing a property for personal use or transacting with disqualified persons, including yourself and certain family members.

","

When using a solo 401(k) to invest in real estate, you must also ensure that all income and expenses related to the property flow through the 401(k) account. This means that you cannot take any of the income for personal use. All income must be returned to the 401(k). You can still withdraw the money later to fund your retirement later on.

","

Similarly, any related expenses must be paid from funds that are in the solo 401(k) to avoid penalties and maintain the tax-advantaged status of the account. This includes expenses for insurance, property taxes, repairs, maintenance, management and so on. If the IRS determines that a prohibited transaction has taken place, the account immediately loses its tax-advantaged status with all of the money in it becoming subject to taxes and penalties.

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Benefits of Using a 401(k) to Invest in Real Estate

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Investing in real estate through your self-directed 401(k) offers several benefits that can enhance your retirement portfolio:

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Bottom Line

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Investing in real estate through a 401(k) could help diversify your retirement portfolio and potentially offer higher returns. Some 401(k)s will allow you to invest in real estate through REITs, if they are included in your mutual fund or ETF investment options. But, if you have a self-directed solo 401(k), you might be able to invest in more real estate options.

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Tips for Investing

","$5f","

Photo credit: ©iStock/skynesher, ©iStock/Jacob Wackerhausen, ©iStock/Jacob Wackerhausen

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While bank accounts and many other financial accounts can be jointly owned, retirement accounts like IRAs and 401(k)s are inherently individual. That means each person must open and maintain their own retirement account. The IRS does not permit sharing these accounts between spouses or any other individuals. Spousal IRAs represent an exception that allows a […]

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","

If you need help creating a retirement plan, a financial advisor can walk you through specific strategies for your needs and goals.

","

Can You Have a Joint Retirement Account?

","

Each of the various types of retirement accounts such as individual retirement accounts (IRAs) and 401(k)s have features that make them different. However, one thing they all have in common is that they are individual accounts. Unlike joint bank accounts, retirement accounts are strictly owned by one person.

","

An IRA is exactly what its name implies – individual. This means that each account is owned by one person only. The IRS does not permit IRAs to be shared between spouses or any other individuals. Each person must open and maintain their own IRA if they wish to take advantage of the tax benefits these accounts offer.

","

Similarly, 401(k)s and other workplace retirement plans are also individual accounts. These plans are sponsored by employers and are tied to the individual employee. While spouses can be beneficiaries of these accounts, they cannot be joint owners. Each spouse must have their own 401(k) account through their respective employers if they both want to participate in this type of retirement savings plan.

","

What Is a Spousal IRA?

","

Although joint IRAs or 401(k)s do not exist, there are alternative ways for couples to save for retirement together. Spousal IRAs allow a working spouse to contribute to an IRA on behalf of a non-working or lower-earning spouse.

","

This provision helps couples save for retirement even if one spouse does not have earned income. A spousal IRA operates under the same rules as traditional and Roth IRAs, providing a flexible way to boost retirement savings.

","

Eligibility Requirements

","

To qualify for a spousal IRA, the couple must file a joint tax return. The working spouse must have enough earned income to cover the retirement account contributions for both spouses. The non-working spouse must be under the age of 70 1⁄2 for a traditional IRA but can contribute to a Roth IRA regardless of age, as long as the couple’s adjusted gross income falls within the allowable limits for Roth contributions.

","

Spousal IRA Contribution Limits for 2024

","

The annual contribution limit for a spousal IRA is the same as for individual IRAs. For 2024, each spouse can contribute up to $7,000, or $8,000 if they are age 50 or older. These limits apply to both traditional and Roth IRAs.

","

Consider a married couple where one spouse works full-time outside the home and the other is a stay-at-home parent. The income-generating spouse earns $90,000 a year, which is enough to cover their living expenses and still allows for retirement contributions. This spouse can contribute $7,000 to their own IRA and another $7,000 to the stay-at-home spouse’s spousal IRA. If they are both over 50, they can each contribute an additional $1,000, making their total annual contribution $16,000.

","

How to Open a Spousal IRA

","

","

When opening a spousal IRA, you’ll first need to decide between a Traditional IRA and a Roth IRA. Contributions to a Traditional IRA may be tax-deductible, while withdrawals are taxed. Roth IRA contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement. The indicated choice depends on the individual saver’s current tax situation and retirement goals.

","

Next, choose a financial institution to hold the IRA, such as a bank, brokerage or mutual fund company. The application process involves providing personal information and selecting the type of IRA. After the account is set up, make contributions either via lump sum or regular deposits, ensuring you do not exceed the annual contribution limits.

","

Naming a Beneficiary on Your Account

","

Naming a beneficiary for your spousal IRA is a key step in retirement planning. A beneficiary is the person who will inherit the funds in the IRA upon the account holder’s death. This ensures the smooth transfer of assets and can help avoid probate.

","

To name a beneficiary for a spousal IRA, complete the beneficiary designation form provided by the IRA custodian. This form typically asks for the beneficiary’s name, relationship to the account holder, and Social Security number. Review and update beneficiary designations periodically, especially after significant life events such as marriage, divorce or the birth of a child.

","

While a spouse is often the primary beneficiary, you may also name contingent beneficiaries. Contingent beneficiaries inherit the account if the primary beneficiary predeceases the account holder. This strategy provides a backup plan, ensuring the assets are passed on according to your wishes.

","

Designating a beneficiary for a spousal IRA can offer tax advantages. For example, a surviving spouse can roll over the inherited IRA into their own IRA, allowing the continued tax-deferred growth of the assets. A spouse beneficiary can also keep the spousal IRA as an inherited account and take distributions based on their own life expectancy.

","

Some non-spouse beneficiaries, including minor children and someone who is disabled, can take distributions according to their own life expectancy. Then can instead elect to take distributions according to the original account owner’s remaining life expectancy.

","

Other Types of Joint Accounts

","

Although traditional joint bank accounts don’t offer tax benefits. couples can save for retirement using these accounts, which allow both partners to contribute and manage their funds. This approach may be a good fit for someone who prefers a simple approach to saving that offers easy access and control over their combined assets. Joint bank accounts can include savings and money market accounts.

","

Joint brokerage accounts are another option for couples planning their retirement together. These accounts enable both partners to invest in stocks, bonds, mutual funds and other securities, allowing for a diversified investment strategy. Joint brokerage accounts can also offer the opportunity for higher returns.

","

Bottom Line

","

","

While individual retirement accounts (IRAs) and 401(k)s cannot be shared between spouses, the spousal IRA offers a way couples can accumulate retirement savings together. Subject to contribution limits and other rules, one partner who earns income can contribute to a tax-advantaged account for the other partner. With careful planning and regular reviews, spousal IRAs can be a strategic component of a comprehensive retirement plan.

","

Retirement Planning Tips

","$72","

"],"experts":null,"link":"/planning-for-retirement/joint-retirement-account","published":{"datetime":"2024-8-7","readable":"August 7, 2024"},"shareInfo":{"title":"What Retirement Accounts Can Be Held Jointly?","origin":"/retirement/joint-retirement-account"},"isNewsArticle":false},{"id":"cG9zdDoyNjE2NTQ=","databaseId":261654,"postId":261654,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1323,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ3NA==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19474,"categoryId":19474,"link":"https://smartasset.com/planning-for-retirement/articles","name":"Retirement Planning","postCount":{"pageInfo":{"offsetPagination":{"total":571,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"planning-for-retirement","ancestors":{"nodes":[{"name":"Retirement","slug":"retirement","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Retirement","id":"dGVybTo5Mw==","slug":"retirement","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$73","date":"2024-09-12T21:26:14","excerpt":"

High-income earners can optimize their retirement savings by using strategies like maximizing contributions to retirement accounts, making backdoor Roth conversions and managing investments strategically. These approaches can provide tax advantages and help grow wealth to meet long-term financial goals. If you want to build your nest egg, a financial advisor could help you identify investment […]

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","

If you want to build your nest egg, a financial advisor could help you identify investment opportunities and determine the risks.

","

8 Retirement Savings Strategies for High-Income Earners

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Adapting your retirement savings strategy to fit a high-income level can help secure a comfortable and well-funded retirement. Here are eight general strategies for high-income earners to consider.

","

1. Max Out Your Retirement Accounts

","

Maxing out tax-advantaged retirement accounts is a strategic move for high-income earners looking to reduce taxable income while growing their wealth for the future. 2024 contribution limits are:

","

Employer-sponsored accounts: In 2024, the contribution limit for 401(k) and similar workplace retirement accounts is $23,000, with an additional $7,500 catch-up contribution for those 50 and older.
IRAs: The annual contribution limit for IRAs is $7,000 in 2024, plus a $1,000 catch-up for those 50 and above.

","

By fully funding these accounts, high-income earners can benefit from tax-deferred growth. This allows investments to compound over time without tax erosion, giving you a larger nest egg in retirement.

","

2. Use a Backdoor Roth IRA

","

In 2024, certain high-income earners are ineligible to contribute directly to a Roth IRA. This includes modified adjusted gross income (MAGI) limits of above $161,000 for single filers and $240,000 for married couples filing jointly.

","

However, they can still access the benefits of a Roth IRA through a backdoor Roth IRA. This retirement savings strategy for high income earners involves contributing to a traditional IRA and then converting those funds to a Roth IRA. High-income earners use this approach because it allows for tax-free growth and withdrawals in retirement, which is especially beneficial given the tax advantages. Additionally, Roth IRAs do not have required minimum distributions (RMDs), offering more flexibility in retirement planning.

","

3. Contribute to an NQDC Plan

","

A non-qualified deferred compensation (NQDC) plan retirement savings strategy for high income earners that allows you to defer a portion of their salary or bonus to a future date, typically in retirement. Unlike qualified plans, such as 401(k)s, NQDC plans do not have contribution limits set by the IRS, offering the flexibility to defer larger amounts of income.

","

The deferred money grows tax-deferred until it is withdrawn, at which point it is taxed as ordinary income. This can be advantageous for high earners who expect to be in a lower tax bracket during retirement. NQDC plans are often offered by employers as a benefit to key executives or high-level employees, allowing them to manage their income and taxes more effectively over the long term.

","

4. Consider a Mega Backdoor Roth IRA

","

A mega backdoor Roth IRA is a strategy that allows high-income earners to contribute significantly more to a Roth IRA through after-tax contributions to a 401(k) plan.

","

In 2024, individuals can contribute up to $69,000 (or $76,500 if 50 or older) across all 401(k) contributions, including employee contributions, employer match and after-tax contributions. After making the maximum after-tax contribution to the 401(k), the individual can convert those funds to a Roth IRA, allowing for tax-free growth and withdrawals in retirement. This strategy is beneficial for those who want to maximize their retirement savings beyond the standard Roth IRA contribution limits.

","

5. Contribute to an HSA

","

A health savings account (HSA) is a tax-advantaged savings account available to individuals enrolled in a high-deductible health plan (HDHP). For high-income earners, an HSA can serve as a supplemental retirement savings tool, as funds can be used tax-free for medical expenses in retirement or withdrawn for any purpose after age 65 (though non-medical withdrawals are subject to income tax). This flexibility makes HSAs a valuable addition to a comprehensive retirement strategy.

","

In 2024, the contribution limits for HSAs are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those 55 and older. HSAs offer a triple advantage: contributions are tax-deductible, earnings grow tax-free and withdrawals for qualified medical expenses are also tax-free.

","

6. Pay Attention to Asset Location

","

Asset location strategically places investments in different types of accounts to maximize tax efficiency. For high-income earners, this means placing tax-inefficient assets, like bonds, in tax-deferred accounts such as a 401(k) or IRA, where they can grow without being taxed annually. Conversely, tax-efficient assets, like stocks, can be held in taxable brokerage accounts, taking advantage of lower capital gains tax rates. By implementing asset location, high earners can potentially reduce their tax burden over time, allowing for more efficient growth of retirement savings.

","

7. Contribute to a 529 Plan

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Another retirement savings strategy for high income earners is a 529 Plan. Contributing to one can help a beneficiary begin saving for retirement, especially with the benefits introduced by the SECURE 2.0 Act. If funds in a 529 plan are not used for education, they can be rolled over into a Roth IRA for the beneficiary, up to the lifetime limit of $35,000. This allows the beneficiary to begin building tax-free retirement savings using leftover education funds for an early start to retirement planning. With this rollover feature, 529 plans are a versatile tool for both education and retirement.

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8. Save Excess Money in a Brokerage Account

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Investing excess savings in a brokerage account is a flexible option for high-income earners who have maxed out contributions to tax-advantaged accounts. Unlike retirement accounts, there are no contribution limits or withdrawal restrictions on brokerage accounts, allowing for greater control over investment choices and liquidity. While investments in a brokerage account are subject to capital gains taxes, this account can still provide a valuable way to grow wealth and diversify retirement savings, especially when other options have been fully used.

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Bottom Line

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High-income earners have many opportunities to enhance their retirement savings through strategic planning and the use of different financial tools. Maximizing contributions to retirement accounts, leveraging Roth conversions and taking advantage of specialized plans, could help you optimize your tax efficiency and grow your wealth over time. Additionally, considering asset location and using flexible savings accounts can help you make the most of your resources.

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Tips for Retirement Planning

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