Save Cash For Retirement
Maxing out retirement-fund contributions
Many thrifty people are searching for investment options for cash now that they’ve made the maximum allowed retirement-fund contributions. Experts have said to invest for retirement for years, and surveys indicate that people are listening. These people are now in the enviable position of having made the maximum allowable contributions to their retirement funds and not knowing what to do with their additional savings.
An example of good saving
Scott and Amber Rowson of Columbia, Missouri, have contributed the maximums allowed to their tax-deferred retirement accounts. They budgeted strictly enough to contribute the maximum from Scotts state-job salary and Ambers self-employment SEP IRA. Their two children’s 529 college education accounts are fully funded, too. Amber said, Now that our childrens savings are taken care of and our retirement funds are maxed, we want to know where our money should go . . . over the years we’ve gotten good at squaring away a portion of our earnings and it seems illogical to just stop now.
How to save when retirement accounts are funded
After retirement funds are maxed out, one option is to contribute directly to a Roth IRA. The obvious benefit is withdrawals, post retirement, are tax free and it’s a wonderful way to put away more cash. There is a new rule for Roth IRAs as of 2010. This year everyone regardless of income can convert a traditional IRA to a Roth IRA. There is a cost, however, because taxpayers must pay ordinary income tax on the entire amount converted. Still, the strategy can pay off for taxpayers like the Rowsons. They can convert the funds and split the tax liability between 2011 and 2012.
Other savings options
When it comes to managing cash now that retirement accounts are funded, people also can start investing in taxable accounts. Despite the taxable nature, there are no penalties for withdrawals. The Rowsons’ advantage is that Amber is self employed, and should her business suffers from market conditions, she can use savings if she needs to without any tax penalties.
There’s also life insurance
Another option for the Rowsons, and anyone else wise and thrifty enough to max out their retirement contributions, is to look into alternative investments. The Rowsons retirement portfolios are packed with standard stock and bond options so any extra money can go into alternative savings like cash-value life insurance. This is also a way to have tax deferred earnings and liquidity. Amber said, I like this option because it gives me another safety net if my business slows down or if I decide that I want to do something different in a few years and get stuck in a learning curve.” Someone like Amber, who wants to invest in real estate, would find this a highly advantageous option for future savings.
Who doesn’t want to maximize retirement savings?
For anyone in the enviable position of having maximized retirement contributions, the question of what to do with cash now is an important one. Depending on the investors individual circumstances, some options may make more sense than others. The best things avid savers can do is to keep up the good work however they can. There are plenty of really good options for saving up for the future.