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The Secret to Crushing Your Roth IRA Retirement Savings Goals

By Charlene Rhinehart, CPA - Apr 25, 2021 at 9:42AM

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It's never too late to make strides toward your retirement goals.

Growing older is a gift that comes with many privileges -- especially when it comes to retirement accounts. If you haven't tapped into the power of tax-advantaged retirement vehicles like the Roth IRA, you're missing out on a big chance to put yourself on a more solid financial footing in your golden years. 

Here are some ways to supercharge your retirement success with a Roth IRA if you're over 50.  

Older woman holding money.

Image source: Getty Images.

Catch up on your financial goals with this perk 

For most retirement savers, the annual contribution limit for a Roth IRA in 2021 is $6,000. But those who are 50 or older can top that off with an additional $1,000 "catch-up" contribution.  

Now, $7,000 a year may sound like an excessive amount of cash to allocate toward an individual retirement account -- especially if you're also contributing to an employer-sponsored retirement plan such as a 401(k) or 403(b). But it's not as difficult as it appears once you break it all down. 

Maximize your contribution potential  

Typically, a retirement saver under 50 could allocate $500 a month toward a Roth IRA and hit the $6,000 mark in 12 months.

However, if you're 50 or older, and you've used that $500 a month contribution rate for a year, you may still be able to maximize your contributions to that $7,000 level. That's because savers can continue to make prior-year Roth IRA contributions right up until the tax filing deadline. So if you made a $500 contribution every month from January through December and added additional $500 contributions in January and February, you could assign them retroactively to the prior year, and hit your $7,000 maximum annual contribution goal.

But there's a catch to all of this: You can never contribute more to an IRA than your earned income for the year. So if you only made $4,000 in a given year, you'll be limited to a $4,000 contribution to your Roth IRA. 

Keep tabs on your money 

Achieving your financial goals boil down to two numbers: income and expenses. If you need to increase your income, jot down different ways to make that happen. You can ask for a raise at work, seek out more rewarding opportunities, or teach others what you know. But be careful: If you earn too much money, you won't be eligible to make direct contributions to a Roth IRA.  At that point, you may find other strategies more beneficial. You may also want to consider a backdoor Roth IRA.

If you review your numbers and realize that expenses are weighing you down, then you have to dig a bit deeper. What are your needs versus your wants? Could you negotiate some of your bills downward? Start tracking your money so you can find ways to allocate more funds to what matters most. This is the time where retirement happiness may jump to the top of the list.  

Consider an investing strategy that works for you 

Savings that are left in a bank account are destined to lose their buying power to the steady erosive action of inflation. If you want your money to grow, you have to put it to work. When considering what stocks or funds to invest your Roth IRA money in, you'll want to think about how long you have before you plan to retire, your goals, and your tolerance for risk. You may want to work with a financial professional to guide you toward the right decisions for you. 

Although it can be tempting to invest only in those stocks that are the hottest at the moment, think carefully about your time horizon. How much long will you have before you'll need to start drawing down on your retirement accounts? That's also the amount of time you'll have for the assets in them to recover from any short- or medium-term declines.

Dividend-paying assets should be a component of most well-diversified portfolios. They may offer a bit more safety and sustainability than other types of stocks, though, all equities carry the risk of loss. Those recurring streams of income can keep you on the path to meeting your financial goals. And while they are no more guaranteed than share price gains, companies with histories of steady dividend payments are relatively safe bets to keep making them.

The road to retirement success 

If you don't have a Roth IRA yet, do your research and determine if such an account would be appropriate for your needs. These accounts can open up a world of options that can expedite your investing success.

But don't drag your feet, because you'll need to have an account open for at least five years to take advantage of the tax-free income perks that are available once you turn 59 1/2. And by saving now, you may also be eligible for the Saver's Credit which can be beneficial when tax time comes around. 

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