How to Max Out Your Retirement Accounts: 401(k), IRAs, and More

September 30, 2021

How to Max Out Your Retirement Accounts: 401(k), IRAs, and More

As somebody who's good with my money and investments, I'm often asked the best way to invest for retirement. My answer is always the same: It depends on your situation.

When it comes to saving for retirement and investing in a tax-advantaged account like a 401(k) or IRA, there are 10 basic rules you should follow.

My Top 51 Tips On Maxing Out Your Retirement Accounts


Table of Contents

These rules will help ensure that your money grows as much as possible so you can have a better quality of life during retirement. Here they are:

1) Start early

The power of compounding interest can be amazing! In their book "Your Money or Your Life," Joe Dominguez and Vicki Robin say "time is your greatest ally." That's because the sooner you begin saving for retirement, the less money you'll need to save overall. It sounds like a cliché but it's true.

2) Contribute as much as possible

Some people think they can't afford to contribute anything at all to their 401(k) or other retirement plans. While there are many cases where that might be true, most of the time it isn't. People who don't contribute anything usually say they can't afford it or that they're not making any money right now so what's the point? A better attitude would be to say "I'll start contributing later" but choose a date in the future when their finances will be different and they can afford to save.

3) Pre-bought investments are a bad idea

I once heard from a young business owner who was considering taking out a 401(k) loan so he could invest the money in the stock market. In my opinion, his plan wasn't very smart because it reduces your retirement fund just as you're trying to build it up. Instead, he would have been better off getting a low-cost index fund and letting it sit for years while paying down debt or investing in another company that has potential.

4) A Roth IRA is never a bad idea

If you qualify for this type of retirement account, then use one since you're allowed to withdraw money immediately without paying any penalty fees. It's like having a free pass to take any amount money from your account without being taxed or penalized. Once you reach age 59 1/2, however, you will have to pay a fee if you withdraw the money for anything else other than a first-time home purchase.

5) Make 401(k) contributions year-round

Most people only contribute during their employer's annual open enrollment period which usually happens in October or November of each year. While that could be enough time for some people, there are others who should try contributing throughout the entire tax year (from January until April 15th). If your employer offers this option then I recommend using it because the more days you're allowed to contribute, the better off you'll be in retirement!

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6) Follow your retirement plan to the tee

Too many people make excuses for not following their 401(k) investment plan. For instance, some employees say they hate the choices their employer has given them so they swap high-priced funds with low-cost ones or rely on advice from friends instead of investing properly. Others complain that their plan doesn't offer enough options but if your company offers a good selection then you're better off sticking with it.

7) Always max out your IRA

This is another type of retirement account that's usually tax-deferred and most workers are allowed to contribute up to $5,000 each year depending on their age, income level, and if they have any other IRAs already saved. If you qualify for this type of plan then it's important to max it out each year no matter what. It will give you a significant boost toward your retirement goals.

8) Always take company matching dollars

I recommend doing this even if you don't want to contribute more money to your 401(k). If your employer offers a match, then it means that they'll put money into your 401(k) as well (usually 50 cents for every dollar you invest up to 6%). While that might not seem like much, those "free" dollars can add up over time and really make a difference in the total amount of money you end up with during retirement.

9) Invest according to your age

The younger you are, the more aggressive your investment portfolio should be. For instance, if you're 25 years old then it makes sense to invest mostly in stocks because you've got many decades before retirement so the stock market's fluctuations won't matter too much for at least 30-40 years or so. That also means that your investments will typically take a hit during times of economic distress but once things start getting better they'll recover just as fast.

10) Don't forget about inflation

This is why young investors need to choose growth over income, especially if their employers offer them company matching dollars. If you're young then go for aggressive growth over income because it's your best chance at achieving a comfortable retirement.

11) Don't cash out

The last thing any young investor should do is cash out his or her 401(k) during a bear market thinking they can make back their money quickly. It doesn't work like that so don't risk losing half your money by putting it into something as unpredictable as the stock market. If you decide to pull anything from your account, then always withdraw the money you contributed first because that's yours to keep regardless of what happens with your investments.

12) Try not to touch your retirement plan too much

Another mistake young investors make is feeling tempted to withdraw their funds when something costly comes up or they just need quick cash. While this is understandable, I've learned that it can cost you big time in retirement. Don't take out 401(k) loans for emergencies; don't pull out money for college without getting hit with huge penalties (if allowed at all); and most importantly, leave your 401(k) alone if you decide to change jobs unless there isn't an employer match involved! That last one may seem like common sense but plenty of people end up losing hundreds of thousands of dollars by not following this advice.

13) Be careful about 401(k) fees

Whenever possible, try to invest in index funds (or target-date funds that are comprised mainly of index funds). If your employer offers them and they make sense given your risk tolerance and time horizon then go for it. But if you're investing in actively managed mutual funds instead then make sure you don't get charged too much because those types of investments typically underperform their index-based counterparts over the long haul.

14) Don't cash out your Roth IRA

This is another type of retirement account that young investors need to pay attention to closely if they have one or more Roth IRAs because withdrawals prior to age 59 1/2 will result in a 10% penalty being tacked on to the amount withdrawn. However, the good news is that if you qualify for a Roth IRA conversion then it's possible to rollover your retirement plan into one without incurring any penalties at all. The only downside is that you'll have to pay taxes on whatever you decide to convert but trust me when I tell you this – paying 10% of your entire life savings now or trying to save up that much money later isn't really worth it, especially since most financial planners say that 4-5 % of your total net worth each year should suffice as an adequate withdrawal rate

15) Set up automatic contributions

Perhaps the easiest way to retire wealthy and never worry about running out of money in old age is to max out your retirement accounts on a regular basis. This can be done easily if you just set up an automatic contribution plan based on how much you're able to save each month, quarter or year. Most employers offer this option so make sure to take advantage of it!

16) Always put your money in tax-advantaged accounts first

While I've come to the conclusion that all young investors should utilize Roth IRAs and 401(k) plans before anything else, I also believe that traditional brokerage accounts require too much involvement for someone with limited time and money. However, whenever you have extra dollars left over after funding these two types of investment vehicles then putting at least some of it into taxable investing accounts might make sense because there's a good chance you'll be in a lower tax bracket when you retire. In other words, the strategy is to take advantage of your current income tax rate when possible and save on taxes when investing for retirement!

17) Take calculated investment risks

I've been preaching this message from day one when it comes to young investors and their portfolios: Diversify and invest regularly . However, while these two strategies do form the foundation of any successful portfolio, they alone won't get you anywhere if you dump your hard-earned savings into risky stocks without giving them enough time to grow. That's why controlling risk through asset allocation is so crucial because it will minimize overall volatility and keep you from selling at the wrong time (i.e., during a major market correction or after a steep drop in your chosen investment's value).

18) Keep an open mind about allocating assets

While asset allocation is important, consider the fact that different types of investments tend to perform better at certain points in time. For example, bonds are typically more attractive when interest rates are rising while stocks have historically been considered safer when inflation is in check. That's why it makes sense to look at each category in terms of its standard deviation and how it has performed over various timeframes before deciding what percentage should be added to your portfolio. The bottom line here is that you want high-risk investments inside your long-term retirement accounts (i.e., Roth IRA), moderate risk investments inside your taxable brokerage account and low-risk investments inside your retirement accounts (i.e., 401(k), 403(b), etc.).

19) Beware of hidden fees

Unfortunately, most brokers and mutual fund companies aren't as transparent as they should be about the expenses associated with their investment offerings so you'll have to do a bit of work on your own. In other words, before signing up for any service it pays to ask questions, especially the hard ones dealing with how much annual fees are being assessed along with what types of assets are being underperformed by those costs. Believe me when I tell you that this is one of the only ways you're going to find a good financial advisor because most don't want you knowing how much they earn off your money!

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20) Keep an eye on your 401(k)

To be honest, I'm not a big fan of employer-sponsored retirement plans because they limit the number of investment choices you have as well as what fees are being charged. However, that doesn't mean you should ignore these important vehicles because it's crucial to take advantage of company matches and put enough money into your account each year to capture those dollars. The bottom line is that most Americans don't participate in these plans and miss out on free money (i.e., contributions from their employers), which explains why millions of people will retire broke!

21) Don't count on Social Security

While we could debate all day long about whether Social Security still has a place in this country's retirement plans, there's really no disputing the fact that it's one of the primary reasons most people will never be able to retire. In other words, by the time you factor in inflation and life expectancy (i.e., how long your savings must last), the average person retiring today can expect to receive somewhere between $500 and $1,000 per month from Social Security. And while I realize this isn't a ton of cash, keep in mind that many seniors depend on these benefits for their entire income and don't have any extra funds to save or invest each year!

22) Make sure your spouse is on board

If you're young enough there's still plenty of time for you to get focused financially, but it's never too late to help your significant other learn the importance of saving money for retirement. The bottom line is that if you want to live a comfortable life in your golden years then you need to make sure that both halves of the equation are looked after, which means putting away 15% or more into tax-advantaged accounts each year while having a plan in place to reduce spending when necessary.

23) Beware of lifestyle inflation

I'm willing to bet that anyone reading this article falls into one of two camps:

  1. They're living paycheck-to-paycheck and have little or no savings whatsoever OR
  2. They've been socking away money for retirement over the past 10 - 20 years and are ready to begin enjoying their hard-earned money now.

If you're in the first group, what are the odds that you'll suddenly start saving for retirement now? And if you're already doing a good job of saving then ask yourself the following question, "Can I continue to live at this level without my expenses increasing?" No matter how you choose to look at it, lifestyle inflation can become an expensive problem if it's not properly managed.

24) Have more than enough life insurance

The reality is that most Americans don't have nearly enough life insurance, which explains why 20% of families end up paying estate taxes when their loved one dies! Thus, instead of spending your money on fancy cars and other frivolous things why not consider buying more insurance? I'm not saying that you should buy life insurance on every member of your family, but at least having enough coverage to pay off the mortgage and take care of other debts is something that will provide peace of mind now as well as later.

25) Don't forget about inflation

If there's one thing I would love for people to understand it's how much their money can lose value over time due to inflation. So if you have $100,000 saved up for retirement then keep in mind how this could be worth less than half its current value after 10 years. The bottom line is that without proper planning you'll never reach financial independence because your nest egg probably won't be able to support your lifestyle or provide for any emergencies down the road!

26) Plan for your children's college education

Leaving a legacy is one of the reasons why people work so hard every day, but you need to make sure that saving money doesn't interfere with how you'll care for yourself in retirement. For example, if you want to retire at age 65 and you have two children who will be going to college when they're 18 and 20 years old, don't assume that your kids can go without covering their own educational expenses.

27) Diversify wisely

Most people think about diversifying their investments when they're trying to reduce their financial risk, but it's equally important to diversify within each asset class. For example, it might not be wise to all of your retirement savings into a single company stock, which is why you should definitely consider a Roth IRA to provide extra tax diversification.

28) Don't write off your employer's 401(k) match

If your employer offers a matching contribution for your 401(k) plan then there's no question that you should sign up for it as soon as possible! Keep in mind that this free money could be worth as much as 4 - 6% of your salary so don't miss out on getting an instant 100% return on every dollar you invest while working.

29) Diversify within retirement accounts

Most people know they need to diversify their investments outside of a retirement account, but not nearly enough attention is paid to the assets inside a 401(k) or IRA. For example, if you just put all of your IRA into a single company stock then you might be losing out on some great tax diversification opportunities, which can help reduce the risk associated with fluctuations in the market.

30) Don't count on multiple streams of retirement income

It's no secret that most people will rely on Social Security payments to cover their living expenses in retirement, but this popular program has its fair share of problems so don't assume it will be there for your entire golden years. Similarly, if you fail to build up at least $300k in financial assets outside of your 401(k) and IRA then it could take a lot longer than expected to reach financial independence or force you to work way past retirement age.

31) Maintain an emergency fund

It's been said many times before but the importance of having at least 3-6 months worth of living expenses in a high-yield savings account can't be stressed enough because it could make a huge difference in the event of a job loss, medical crisis or some other type of unexpected expense. If you want to view your emergency savings as part of your nest egg then I recommend keeping it invested in some company stock so that it earns dividends and captures any increases in market value that might occur.

32) Be careful with non-qualified investments

While there are plenty of great investment opportunities outside 401(k) and IRA accounts, you'll have to pay ordinary income taxes on any profits you earn in addition to a penalty if you withdraw your money before age 59 ½. This means that non-qualified investments are generally only good for short-term goals or money needed in the next few years, but not both.

33) Use Roth IRA conversion ladders

If you're eligible to convert some of your Traditional IRA savings into a Roth IRA then make sure you create an "L" or "ladder", which is jargon for converting equal chunks of money on a yearly basis until all of your funds have been switched over. The reason why this strategy can be advantageous is because it allows you to gradually pay the tax man instead of writing one large check, which will help keep you from spending too much out of your current income.

34) Max out your 401(k)

If you're fortunate enough to have an employer who offers a matching contribution for your 401(k) plan then make sure you contribute at least enough to capture it because it's essentially free money! Keep in mind that this is an especially good idea if your company uses the "1-12" matching structure, where they'll match every dollar you contribute up until you hit the 12% maximum, which means the most potential savings could be worth as much as 6%.

35) Don't keep too many eggs in one basket

Even though most people don't diversify their investments across several accounts or asset classes they might still lack diversity within each category For example, some investors own 10 different company stocks but they're all in the same industry, which can be a bit risky because you might lose out on some great gains or get totally wiped out if there's a market downturn.

36) Don't monetize your investments – The only reason someone would sell an appreciated asset is to make money, which means it should tell you something that most investors wait until the last minute before pulling the trigger. If you need cash then consider other options first like selling off an underperforming investment or borrowing from a line of credit instead of triggering taxable events that could push you into higher tax brackets.

37) Avoid making withdrawals

Inevitably there will come a time when you have to turn one of your investments into cash for any number of reasons, which might include an emergency expense or some other financial goal. However, the worst thing you can do is to make a withdrawal from your account without thinking about potential tax implications because it could mean that you're left with less money than expected.

38) Keep learning

Even if you're not new to investing or managing your own accounts it's never too late to learn something new because there are always different strategies and techniques that haven't been tried yet. For example, did you know there are options for people 50+ who want to retire early but still earn a paycheck? The more knowledge you have about how investments work the better equipped you'll be when making important decisions in the future.

39) Start planning now

If you've never really thought about what happens to your money after you die then it's probably time to start considering it. Living will be the first step in the process because it provides explicit instructions for how you'd like your remains handled and who should take custody of any assets you leave behind, but without a general plan for investing there might not be much left for whoever inherits your accounts.

40) Have an emergency fund

If the amount of money you have saved up is equal to just 3-6 months worth of living expenses then that's far too low because life has a way of throwing curveballs when you least expect them! The trick is to save up enough cash so that you're prepared if something unexpected goes wrong, such as a medical emergency, job loss, or even a temporary reduction in pay that could make it impossible to cover recurring expenses.

41) Don't be afraid to invest in yourself

If you have dreams of starting your own business but lack the financial resources needed to get started then there are options available for people who might not qualify for traditional types of financing. For example, you could sell an idea on sites like Quirky where other users vote on whether or not it's something worth pursuing, and if they think enough people will buy it then you can finance production with pre-orders.

42) Rebalance your portfolio once per year

It doesn't matter how much money you have invested or how many accounts are involved because rebalancing is intended to maintain the balance between your investments. For example, imagine you have one account that's managed entirely using aggressive growth strategies while another only invests in safe choices like bonds and money market funds – over time there will be an inevitable shift that could leave your conservative investment lagging behind if you don't make any changes to get back on track.

43) Think about what you want to achieve

Before making any trades or taking other steps to manage your portfolio it might be a good idea to consider the reasons why you invested in the first place. For example, are you trying to save up enough cash for a house? Or are you just building up a college fund for kids? Whatever your goal is it should guide every trade because if nothing else this forces you to stay focused on the long-term rather than doing anything that could jeopardize your chances of reaching it.

44) Keep a close eye on your credit score

When you have good credit people are more likely to do business with you, which means they might offer lower interest rates on loans and better terms when shopping for insurance policies. While there is absolutely no reason why you should ever pay off a debt without making the minimum payment due because this will hurt your credit rating along with everything else!

45) Before investing in a company consider its competitors

Even if a particular business has been around for decades and seems like a sure bet for success it's always worth looking into what their competition has going on behind closed doors before handing over your hard-earned cash! For example, many investors were duped by the Enron scandal because for years it seemed like a perfectly viable company.

46) Understand your risk tolerance – Risk tolerance is defined as the willingness to take on financial risk in order to achieve potentially higher rewards, but some people are naturally more willing to take chances than others. If you have a high risk tolerance then there's little that will stop you from doing whatever it takes to get ahead, but if you have a low threshold for pain then you should avoid making any investments that carry too much danger because - no matter how promising they seem - you might walk away empty-handed if things don't work out.

47) Set up automated deposits

Even though you may be tempted to check your brokerage account every day it's not a good idea because the markets are constantly in flux, which means you'll get an up-close look of how market fluctuations affect specific investments. Additionally, your cash is better spent on things that matter than watching stock prices rise and fall again and again because this would be like witnessing the same car accident over and over… nothing positive can come from obsessing over it!

48) Open multiple accounts – If you're like most people then there's no doubt you've heard about (or perhaps even opened) at least one checking account that comes with free online bill pay service. This type of convenience makes it easy to pay bills while also earning interest on any leftover cash, but if you already have several savings accounts then you might want to consider opening another one because this will make it easier for you to keep track of all your money.

49) Save the same amount each payday

When people get paid they often put aside a portion of their income for rent, utilities and other regular expenses, but fail to account for how inflation can eat away at spending power over time even if interest rates stay stable or go up slightly. While it's fine to spend some discretionary cash every month the key is to always maintain a healthy emergency fund that could help you weather any unexpected downturns in your financial situation!

50) Is your tax bracket correct?

Federal income tax rates are divided into seven different brackets from 10 percent (for those who earn between $0 and $9,525) to as much as 37 percent (for those who earn more than $418,400). However, figuring out your exact tax bracket is harder than you might think because this depends on other variables such as capital gains and losses.

51) Invest in a Gold IRA or Purchase Gold Bullion

The stock market is an uncertain place, but when the economy crumbles it often means that people start looking for something tangible to help them weather the storm. This is why so many people choose to invest in Gold IRA (such as Goldco offers), or buy gold bullion because - just like in ancient times - precious metals are still well sought-after in the modern era!

In Closing - There's a lot of financial wisdom to be shared and there's no way I could cover it all in one article, but as you can see from above there are plenty of effective tips that should help you make good decisions when it comes to your money!

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Thank You For Your Time & Consideration! Have A Nice Day 🙂

*****DISCLAIMER*****

This is not intended to be investment advice. Seek a duly licensed professional for investment advice.

About the author 

Jenna Lofton, the founder of StockHitter.com, has been actively trading stocks and investing for nearly 11 years.

She holds an MBA in Finance, and another in Business Administration, and lives in Staten Island, NY.

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