Here is the first place to put your retirement savings in 2022
The New Year is a time of celebration, but it also tends to refocus attention on people’s long-term goals, including retirement. Once the calendar hits January 1, the slate is erased on all of your retirement accounts, and you are again free to put your money where it suits you.
If you haven’t wondered where to put your retirement savings first, here’s a guide to help you out.
Don’t leave your 401 (k) match on the table
You should always start saving in your 401 (k) if your business offers you a matching contribution. This is extra money your employer gives you to help pay for your retirement, but you only get it if you put money into your 401 (k) first.
Check with your company’s HR department if you are unsure of how their correspondence system works. Find out how much you have to contribute to get the full match. Next, determine how many pay periods you will need to set aside enough money based on your monthly savings goal.
If you have to contribute $ 3,000 of your own money to get the full match and you set aside $ 150 per pay period, it will take 20 pay periods to claim the 401 (k) match from your employer. This is where your retirement savings should go, at least for the first part of the year.
The exception to this rule is if you are not fully invested in your 401 (k) plan and plan to quit your job soon. Quitting before you are fully invested could cost you your 401 (k) match, so you may not gain anything by putting your money here against another retirement account. Check with your HR department to find out more about its acquisition schedule.
Consider an HSA
Health savings accounts (HSAs) aren’t technically retirement accounts, but more and more people are hiding their savings there anyway to take advantage of its triple tax advantage. The money you put in an HSA reduces your taxable income for the year, your income grows tax-free, and you can make tax-free medical withdrawals at any age. You can also make non-medical withdrawals, but you’ll have to pay tax on those, plus a 20% penalty if you’re under 65.
You must have a qualifying health insurance plan to contribute to an HSA, that is, a plan with a deductible of $ 1,400 or more for individuals or $ 2,800 or more for a family. People who meet these criteria can contribute up to $ 3,650 in 2022, while families with eligible insurance plans can contribute up to $ 7,300.
If you are considering using an HSA for retirement savings, look for a provider that will allow you to invest your funds. Some keep your money in what is essentially a savings account where it won’t earn much interest. Investing your money will help it grow faster.
Consider an IRA
An IRA is another option to consider after claiming your 401 (k) match. These accounts have several advantages over 401 (k) that might make them a better choice for your funds.
With an IRA, you can choose when you want to pay taxes on your funds, an option you may not have with a 401 (k). Traditional IRAs make more sense if you think you’re in a higher tax bracket than what you’ll be in when you retire. If not, a Roth IRA might make more sense.
Going with an IRA also opens up a lot more investment choices for you. Most 401 (k) limit you to certain mutual funds that your employer preselects. But with an IRA, you can invest in these as well as stocks, bonds, exchange-traded funds (ETFs), and more. This allows you to build a portfolio tailored to your investment goals and can also help keep your costs down.
The downside to contributing to an IRA is its low contribution limits. You can only contribute up to $ 6,000 in 2022 if you are under 50 or $ 7,000 if you are 50 or over. This may not be enough for some savers.
You can also stick to your 401 (k)
If you prefer to keep it simple, you can always keep using your 401 (k) rather than switching to one of those other accounts once you’ve got your 401 (k) match. You can contribute up to $ 20,500 to a 401 (k) in 2022 if you are under 50 or $ 27,000 if you are 50 or over.
Sticking to your 401 (k) is certainly easier, but it’s always a good idea to consider all of the available accounts before deciding where you want to put your funds. You may find that it pays to put your money elsewhere first. Then you can go back to your 401 (k) later if you max out those other counts.