If you're already actively saving for retirement, that's a great start, but there are a few things you can do to help get the most out of your savings.
If you take advantage of these five retirement hacks, you're more likely to have more than enough to enjoy your retirement.
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1. Get your full 401(k) match
If your employer offers a 401(k) plan with a matching contribution, it should be the first place you put your retirement savings.
The match is usually 50% or 100%, up to a certain percentage of your salary. There's no other investment that can offer an instant, guaranteed 50% return.
Even if your employer's 401(k) plan is otherwise objectively awful, it still pays to contribute up to the maximum amount eligible for matching contributions. That match can offset high administrative fees and expense ratios and make up for subpar fund selections.
2. Be opportunistic with Roth accounts
Roth accounts are an excellent tool for minimizing the taxes you'll pay in retirement.
The value of the Roth account is that it allows you to lock in the taxes you'll pay on your retirement income today. So, if you're in a very low tax bracket, you may want to contribute directly to a Roth account. Likewise, if you have a year of low or no income, you may consider a Roth conversion to lock in a low tax rate today.
It's important to be mindful of the trade-off you're making by foregoing tax-deferred accounts today, so be sure to weigh your options.
Even if you're struggling to get started saving for retirement, a Roth IRA could be useful. That's because you can withdraw contributions to a Roth IRA tax- and penalty-free. So, you could use the Roth IRA to pull double duty as an emergency fund to help get started saving for retirement. You may even qualify for a tax credit as a result of your contribution, helping boost your savings.
3. Harvest your investment losses
Not every investment you make is going to make you money, but that could be an opportunity to save on taxes.
Tax-loss harvesting is a process of selling an investment for a loss and then buying back a similar, but not the same, investment. Doing so realizes a loss on paper for tax purposes, but by reinvesting the proceeds of the sale, you're setting yourself up to continue growing your portfolio in the future.
The reason tax losses are valuable is that they can be used to offset capital gains from other investments you might have sold that year. If you haven't booked enough gains that year, you can offset up to $3,000 of ordinary income, which can provide significant tax savings. Any excess gets carried forward to use in future years.
One thing to be aware of when tax-loss harvesting is the wash-sale rule. The rule stipulates that you cannot repurchase the same (or a substantially similar) investment within 30 days of the sale. The rule applies across all of your accounts, not just the account in which you sold the investment. If you accidentally breached the wash-sale rule, it's as if the sale never happened, and you won't be able to deduct your losses on your taxes.
4. Use your HSA as a super retirement account
If your health plan qualifies you to save in a health savings account (HSA), you're sitting on an excellent retirement savings vehicle.
The benefits of saving in an HSA are all about taxes. You don't pay any taxes on your contributions, the growth in the account, or on distributions made for qualified medical expenses. And if you contribute through a payroll deduction, you won't pay FICA taxes either.
While many people use their HSA to pay for all their medical expenses, it can also be used to save for retirement. Unlike an FSA, which expires at the end of every year, the funds in your HSA are yours forever. That means that if you can afford to pay for your medical expenses with other money, your HSA funds can continue to grow tax-free for years to come. If you save your receipts, you can use them at any point to withdraw funds from your HSA tax-free.
5. Open a solo 401(k) if you're eligible
Even the smallest of small business owners could benefit from a solo 401(k).
A solo 401(k) is a retirement account available to businesses with just one employee. If you have any self-employment income at all and no employees, you're eligible to open one. Many brokerages offer boilerplate solo 401(k) plans with no fees.
The hacks you can do with a solo 401(k) are unmatchable. You could, of course, use it to save a little extra for retirement, with its generous contribution limits. You can also use it as a landing pad to roll over 401(k) funds from past employers instead of a traditional IRA. Doing so will ensure you can still make the most of the backdoor Roth IRA.
If you want to retire early, you may be able to use the solo 401(k) to take advantage of the Rule of 55. If you shut down your business in the year you turn 55, you can start taking withdrawals from the account without paying the usual 10% penalty you'd have to pay for early withdrawals.
Hack your retirement
If you can take advantage of the above savings hacks, you'll put yourself at a big advantage when it comes to your retirement plan. Your future self is sure to thank you for it when they're enjoying a stress-free retirement.
