An article in Kiplinger discussed an aggressive approach to financial planning in your forties. Letโs take a look at some of the highlights.
Make saving for retirement a priority and beef up your investments.
Youโll want to start by making the largest possible contributions to your employerโs retirement plan. At the very least, you should put enough into your companyโs retirement plan to take full advantage of its contribution matching program.
A word of cautionโif you put all your retirement savings into tax-deferred accounts, you might get hit hard by taxes when you retire. Thatโs because withdrawals from 401 (k) plans and traditional IRAs are taxed at the retireeโs ordinary income tax rate. This makes contributing to a Roth IRA a good idea. Your contributions are after-tax, but your withdrawals are tax-free as long as you are over 59ยฝ and have owned the Roth IRA for five years or more.
It is important to note that employees in lower tax brackets are typically better off diverting some of their savings to Roth IRAs and other taxable accounts because the benefit of tax deferral is not as valuable as it is to those in high tax brackets. Conversely, if you are in a high tax bracket, you should contribute as much as possible to tax-deferred accounts. This is because when you take withdrawals in retirement you will likely be in a lower tax bracket.
Next time, weโll look at three other strategies you may want to consider.
