2c:["$","$L2d",null,{"category":"$2e","relatedArticles":[{"id":"cG9zdDoyNjk0MjU=","databaseId":269425,"postId":269425,"author":{"node":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":776,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__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":577,"__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":"$2f","date":"2024-11-25T09:17:08","excerpt":"

\n","featuredImage":{"id":"cG9zdDoyNjk2MzA=","databaseId":269630,"altText":"","date":"2024-11-25T09:06:32","fileSize":3227832,"mimeType":"image/jpeg","modified":"2024-11-25T09:06:43","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/11/iStock-804802532.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-11-25","readable":"November 25, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxOTY=","databaseId":196,"userId":196,"avatar":{"url":"https://secure.gravatar.com/avatar/7eaae8752922e4afcde743b2103c2edf?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Jaclyn is the Director of Economic Analysis at SmartAsset and a CERTIFIED\r\nFINANCIAL PLANNER™. With a bachelor of arts in economics from The College of New Jersey, she evaluates data for trends that affect your financial life. As a spokesperson for SmartAsset, she has been cited by Bloomberg, CNBC, Business Insider, Fox News, The Hill and many more. 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While 65 is later than most people begin investing for retirement, it’s not too late. The question is not whether to invest but how to invest to increase your chances of achieving your financial retirement goals. That’s going to require answering a number of questions, including how healthy you are, how long you can expect to live, whether you still work and can continue to work, what other income sources such as Social Security benefits you can tap and how your retirement expenses tally up. From there you can develop a retirement budget and investment strategy that can help you achieve a comfortable and secure retirement.

","

A financial advisor can help you pull together a retirement strategy appropriate for your circumstances and goals. Use this free tool to match with an advisor.

","

Initial Steps to Investing

","

The first thing to do when beginning investing for retirement at any age is to assess your situation. Begin by evaluating your income and expenses in retirement. Owning your home mortgage-free helps limit expenses, because housing is the largest single cost for most retirees. Start there and make up a retirement budget, as this will guide your investment strategy. Don’t neglect costs for Medicare premiums now that you’re 65 and consider whether you will need long-term care insurance.

","

Another key question is how long you expect to live, since that’s how long your money needs to last. Planners may use the same maximum age, typically 90 or even 100, for all clients. Your own life expectancy may be more or less depending on your family and personal health history. For a quick and simple answer, Social Security’s lifespan calculator indicates a typical 65-year-old man can expect to live about 19 more years while a woman of the same age can expect to live about 22 years.

","

You can also shrink the number of years your savings have to support you if you keep working past usual retirement age. In addition to reducing the amount you’ll have to take from savings to pay retirement expenses, this can let you delay claiming Social Security benefits. Unclaimed benefits increase by as much as 32% when claiming at age 70 compared to claiming at age 62. A higher Social Security benefit can have a sizable impact on your comfort in retirement.

","

Set up an account at Social Security’s website, and calculate how much your Social Security will be. Also evaluate other sources of income, such as pensions, that you may have. Between maximizing government benefits and extending your working years you can improve your chances of having a financially secure retirement. A financial advisor can help you navigate your Social Security benefits and other retirement considerations.

","

Late Retirement Investing Strategy

","

Armed with the number of years you expect to spend in retirement, estimated expenses and sources of non-investment income, it’s time to plan your investment strategy. Standard savings accounts are suited for a rainy day fund with three to six months of basic living expenses. But most of your assets will likely be re-deployed to some combination of stocks and bonds or other fixed-income investments that can generate more return.

","

Deciding how to allocate your portfolio between stocks and bonds depends on your risk tolerance and investment horizon. Stocks have higher growth prospects but can be riskier. Bonds can produce income and provide a stabilizing influence for the higher risk portion of your portfolio in stocks. Typically, the older you get, the less emphasis you put on stocks, but most portfolios have at least some stocks.

","

A typical 65-year-old might invest 60% of their investment fund in a diversified mix of stocks and 30% in a similarly diversified selection of bonds with the remainder in high-yield savings, certificates of deposit or other forms of cash. You can purchase individual securities but shares of a mutual fund or exchange-traded fund with the desired asset mix will likely be more convenient and offer more diversification. You may also want to consider annuities, which can generate guaranteed income.

","

Late Retirement Investing In Action

","

If you continue working for five more years without claiming Social Security, those benefits will be at their maximum. By that time, assuming a steady 7% annual rate of return, your $85,000 will have grown to $120,619. Simulations indicate you will be able to withdraw funds at the safe withdrawal rate of 4% of the balance adjusted annually for inflation, equal to $4,825 the first year, with little chance of running out of money in your lifetime.

","

If your retirement budget doesn’t balance, you might try investing more aggressively, which could generate more growth (but may also come with more risk). You could extend the years you plan to work for income for a few additional years to allow your investment fund to grow more. You could also relocate to a less expensive location to reduce your living expenses. Consider speaking with a financial advisor if you have questions or want a professional opinion on your retirement investment strategy.

","

Bottom Line

","

Starting to invest for retirement at age 65 with $85,000 will limit your ability to take advantage of long-term investment growth, but you can make significant progress in the years you have left before leaving the workforce. You can start by carefully assessing your financial and health situation, then starting to invest in a manner that suits your risk tolerance and time horizon. It’s not too late to make progress toward a more secure retirement by investing the funds you have available.

","

Tips

","$41","

Photo credit: ©iStock.com/FatCamera

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Deferred compensation in New York City offers public employees an opportunity to plan for their financial future. The New York City Deferred Compensation Plan is a voluntary program that allows city employees to set aside a portion of their salary for retirement, thereby reducing their taxable income in the present. Participants can choose between a […]

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","

If you want to keep your retirement savings on track, a financial advisor can help you create a plan to set and reach different goals.

","

What Is NYC’s Deferred Compensation Plan?

","

The New York City Deferred Compensation Plan (DCP) helps city employees build a secure financial future by allowing them to defer a portion of their salary into retirement savings plans. Eligible participants can choose between a 457(b) plan and a 401(k) plan, or opt to contribute to both. Employees can invest in a variety of options, including mutual funds and target date funds.

","

Who’s Eligible for the DCP?

","

This program is specifically designed for individuals employed by the City of New York, including those working in various city agencies, public schools and other municipal entities.

","

Eligibility for the New York City Deferred Compensation Plan extends to all full-time and part-time employees of the city. This includes civil service workers, teachers, police officers, firefighters and other municipal employees. Additionally, certain employees of participating public benefit corporations and authorities may also qualify.

","

Contribution Limits

","

","

For 2024, participants in the DCP can contribute up to 75% of their reportable gross income – up $23,000 – to a traditional 457 or 401(k) plan. This limit applies to pre-tax contributions and is set by the Internal Revenue Service (IRS). Individuals who are age 50 or older have the opportunity to make additional catch-up contributions, raising their contribution limit by an extra $7,500 for a total of $30,500.

","

Special 457 Catch-Up Contributions

","

The Deferral Acceleration for Retirement (DAR) is a catch-up provision within the NYC DCP 457 plan that offers a way for those behind in their retirement savings to boost their contributions in the final years before retirement. If a participant didn’t contribute the maximum amount in earlier years, they can contribute more than the standard annual limit through DAR.

","

Participants can only take advantage of this provision during the three consecutive years prior to their designated Normal Retirement Age (NRA), which can range from when they first qualify for full pension benefits up to age 72.

","

For 2024, this special catch-up limit enables eligible participants to contribute up to twice the standard annual limit. This means participants may be able to defer up to $46,000 if they qualify. It’s important to note that participants can either use the special 457 catch-up or the standard age-based catch-up, but not both in the same year.

","

DCP Account Options: 457 vs. 401(k)

","

The Deferred Compensation Plan (DCP) in New York City offers two primary account options: the 457 and 401(k). While both accounts provide tax advantages, there are key differences that can affect how participants manage their retirement savings:

","$4f","

Fees and Costs

","

The DCP is a self-funded program, meaning its operations are covered by participant fees rather than external funding sources. As part of this arrangement, DCP participants are responsible for paying an administrative fee of $20 per quarter. This fee remains the same whether an individual has a 457 account, a 401(k) account, or both, totaling $80 annually.

","

In addition to the flat administrative fee, participants also pay an asset-based fee of 0.04% on their investment funds. This annualized fee is deducted from the value of the assets in the participant’s account and helps cover the costs of managing the plan’s investment options.

","

NYC Deferred Compensation Loans

","

Participants in New York City’s DCP may be eligible to borrow from their accounts under certain conditions. The DCP offers loans from both the 457 and 401(k) plans (but not Roth options), allowing participants to access funds before retirement. However, there are specific rules that govern these loans.

","

Participants can borrow a portion of their account balance, typically limited to 50% of their vested account value, with a maximum loan amount of $50,000. Loans must be repaid through payroll deductions within a set period.

","

It’s worth noting that loan repayments include both principal and interest, and failing to repay the loan on time can result in penalties or the loan being considered a taxable distribution. Participants should also be aware that taking out a loan reduces the amount invested in the plan, which could impact long-term growth.

","

Bottom Line

","$50","

The New York City Deferred Compensation Plan (DCP) allows municipal employees to boost their retirement savings through tax-deferred contributions. By letting participants choose between a 457 plan, a 401(k) plan or both, the DCP provides flexibility in how individuals manage their long-term investments. With options like catch-up contributions and loans, participants can tailor their retirement saving strategy to meet their unique needs. Before investing in the NYC DCP, understand the fees, contribution limits and unique features so you can make informed decisions about your future financial security.

","

Tips for Retirement Planning

","$51","

©iStock.com/Jacob Wackerhausen, ©iStock.com/Jacob Wackerhausen, ©iStock.com/FatCamera

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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

","

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.

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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

","

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.

","

8. Save Excess Money in a Brokerage Account

","

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.

","

Bottom Line

","

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.

","

Tips for Retirement Planning

","$64","

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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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Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":776,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":{"url":"https://secure.gravatar.com/avatar/5ae1da874ddac2010e70c7b0a0def3f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. 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","

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

","

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.

","

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.

","

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.

","

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.

","

How to Use a Solo 401(k)

","

","

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.

","

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

","

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

","$7c","

Bottom Line

","

","

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.

","

Tips for Investing

","$7d","

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