November 1, 2019 • Newsletter
We are rapidly approaching the end of 2019, and for many of us, it has been a crazy year with lots of ups, a few downs, and creative solutions to unexpected problems. It also means we’re all a year closer to retirement.
And I know what you’re thinking: You are never going to retire. Me either. I love what I do too much. But I might not always want to work quite so many hours. And I might not want to always do quite so many things. Maybe one day I’ll want to teach more. Or volunteer more. Or write more.
All of that feels like quasi-retirement (in some form), so setting aside a bit of money for retirement – even if you never plan to stop working – is an excellent thing to do. (And also, it should go without saying that even if we never want to retire, circumstances may unfold differently. Why not be prepared, just in case?)
Convinced? Good. Here’s what you can do this month while you’re thinking about retirement.
W-2 Job Retirement Savings
If you have a W-2 job, look at your most recent pay stub to see how much you have contributed to your retirement account so far this year. (It should show both a current period contribution and a year-to-date contribution, assuming you’ve made contributions.) Take a peek at the total you have already saved for your retirement so far this year. Nice job!
If you are lucky enough to have a W-2 job with matching retirement benefits, make sure you are maximizing them. Find out what your employer has contributed to your retirement account so far this year. Many employers offer a match to an employee’s contribution… And a very few (extra nice) employers may contributions without a match.
If you don’t know offhand whether or not your employer is matching your contributions (or has a plan to match your contributions), take some time this month to poke around on the HR or benefits website of your employer to find out. If they offer a match, make sure you are maximizing it. If they don’t, they may be open to the idea. Why not ask?
Self-Employed Retirement Savings
If you have any income from self-employment, you may be able to make retirement contributions to special accounts for self-employed individuals. This could be freelance income where you are paid as a contractor instead of an employee, or direct services or sales to customers. Your taxes as someone who is self-employed are already on the high side, so making a contribution to a retirement account can help minimize your tax burden. Plus, it’s good for you down the road.
The most common self-employment retirement plans are SEPs (Simplified Employee Pensions) and SIMPLEs (Savings Incentive Match Plan for Employees). (There are other qualified plans too, like solo 401(k)s, FYI.)
An employer (that’s you if you are self-employed) can contribute up to 25% of earned income to an employee’s SEP-IRA (up to $56,000). The business makes this contribution, not the individual. Individuals can have their own IRAs and contribute up to $6,000 in 2019.
In a SIMPLE IRA or 401(k), employees contribute pre-tax earnings to a retirement account, and the employer matches the contribution (up to 3% of compensation). And again, if you are self-employed, you are the employee making the contribution, and your business is doing the match. (If you have other employees, this applies to them as well.)
Getting Ready to Save
There are some limits you should know. You can elect to defer up to $19,000 of your income in 2019 ($25,000 if you are older than 50). And your total contributions for the year (counting what your employer may contribute) has to be less than $56,000 (not counting catch-up contributions if you are older than 50).
But this still leaves a lot of room to save for retirement. Spend some time this month looking at what you’ve saved so far this year… And what you might be able to contribute (especially to a SEP or an IRA) for the rest of the year. And while you’re at it, why not make an appointment with your financial institution to set up a retirement account for yourself? You’ll be glad you did.
Happy November,
Elaine
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