We're entering the final quarter of 2022, and I know I'm not the only one wondering how this year got away from me so quickly. Every year seems to slip by faster than the last, and before we know it, it'll be time to retire. That's why you need to prioritize your retirement savings at every age.
If you're looking to step up your game, here are three things you can still do before this year is over.
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1. Make catch-up contributions if you're old enough
Adults ages 50 and older are allowed to make annual catch-up contributions to their retirement accounts. For 401(k)s, that's an extra $6,500 this year. You can also set aside an extra $1,000 in an IRA for 2022. That brings the annual maximum for adults 50 and older to $27,000 for 401(k)s and $7,000 for IRAs.
You don't have to do anything special to make catch-up contributions -- just contribute the funds as you normally would to your retirement account. But be careful not to exceed the above limits, or you could pay penalties on the extra monies.
If you can afford it, catch-up contributions can help you grow your savings quickly. A $6,500 catch-up contribution made this year could be worth nearly $30,000 after 10 years with a 7% average annual rate of return. And if you make these extra contributions every year, you could wind up with a lot more.
2. Claim your full 401(k) match
You only have a few months left this year to claim your 401(k) match. If you fail to contribute enough to your 401(k) by Dec. 31, that money is gone. Your employer won't give it back to you in some other form. So you should definitely prioritize 401(k) contributions until you've contributed enough to claim the full match.
If you're not sure whether your company offers a match or what its matching formula is, talk to your company's HR department. They should be able to help you figure out how much you must contribute in order to get the full match. Then, look at how much you've already set aside this year.
Step up your contributions for the rest of 2022 if you can and you haven't gotten your full match yet. You can always reduce your contribution amount again once you've claimed your match.
3. Stash extra savings in a health savings account
Health savings accounts (HSAs) are designed to hold medical savings, but they can also double as retirement accounts. Your contributions reduce your taxable income for the year, just like contributions to tax-deferred retirement accounts. And if you withdraw your savings for medical expenses at any age, you won't pay taxes on it at all. You can also make nonmedical withdrawals, but you will owe taxes on these, plus a 20% penalty if you're under 65.
Individuals may contribute up to $3,650 to an HSA in 2022 as long as they have a health insurance plan with a deductible of $1,400 or more. Families may contribute up to $7,300 if they have an insurance plan with a deductible of $2,800 or more. And adults 55 and older may add an extra $1,000 to these limits.
You can open an HSA with many banks and brokers. It's best to go with an account that enables you to invest your savings if you plan to use the account for retirement savings. Otherwise, you'll only earn a small amount of interest on your money each year.
You should also avoid making early HSA withdrawals if you plan to keep retirement funds in the account. If you do need to use the money for medical expenses soon, make sure you step up your retirement contributions to make up for what you withdrew.
Don't forget to review your retirement plan
In addition to taking these three steps, it's a good idea to review your retirement plan to make sure you're on track. If not, you may want to look for additional ways to increase your retirement contributions, or you might consider delaying retirement. Do this quick checkup every year so you can correct small problems before they become big ones.
