Year-end tips for retirement savers young and not-so-young

It’s year-end, and retirement savers of all ages need to check their to-do lists. These year-end lists often feel to me like endless, laborious chores, so I decided to limit suggestions in my Reuters column this week to just three – one apiece for three stages of life: already retired, close to retirement and just starting out.

Already retired: don’t forget the Required Minimum Distribution (RMD). Distributions must be taken from individual retirement accounts (IRAs) starting in the year you turn 70 1/2 and from 401(k)s at the same age, unless you’re still working for the employer that sponsors the plan. It’s important to get this right: Failure to take the correct distribution results in an onerous 50 percent tax – plus interest – on any required withdrawals you fail to take. Also see my in-depth guide to RMDs.

Near-retired: Consider some tax diversification. Vanguard reports that 20 percent of its investors who take an RMD reinvest the funds in a taxable account – in other words, they didn’t need the money. If you fall into this category, consider converting some of your tax-deferred assets to a Roth IRA. No RMDs are required on Roth accounts, which can be beneficial in managing your tax liability in retirement.

Getting started: Start early, bump up your contributions regularly. Getting an early start is the single best thing you can do for yourself, even if you can’t contribute much right now. Let the magic of compound returns help you over the years. A study done by Vanguard a couple years ago found that an investor who starts at age 25 with a moderate investment allocation and contributes 6 percent of salary will finish with 34 percent more in her account than the same investor who starts at 35 – and 64 percent more than an investor who starts at 45.

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