2 Ways To Boost Retirement Savings For People Over 50

At age 50, retirement may still seem like a long way off. However, it’s a great time to stop and refocus on your retirement savings. If you’re not quite on track, there are two financial strategies that can help – and both have additional tax benefits. Let’s take a look at two ways to boost retirement savings for people over 50.

Number 1: Catch-Up Contributions

According to Fidelity, in 2019, Americans between ages 50 and 59 with 401(k) plans had, on average, $174,100 saved. Chances are, that will not be enough to fund a full retirement.

However, thanks to “catch-up” contributions, employees 50 and over are allowed to contribute an additional $6,500 per year into their 401k) plan. That additional money, invested over time, can have a significant impact on the total value.

If you have an IRA, there’s a catch-up contribution option for you as well. In 2021, you can save an additional $1,000 on top of the $6,000 IRA contribution limit. However, consult with your CPA on this one – the deductibility of your IRA contributions will be affected by your 401(k) savings.

Taxes and Catch-Up Contributions

An added benefit to 401(k) catch-up contributions is the tax impact. Let’s say you max-out your savings and put aside $26,000 per year (which would be the maximum contribution of $19,500 plus the $6,500 catch-up). Since traditional 401(k) contributions are made with pre-tax dollars, the tax savings can be substantial.

Remember, the taxes you pay on withdrawals from your retirement plans will occur when you’re in a lower income tax bracket. If you didn’t save that extra $6,500 now, the taxes you would pay for the catch-up funds would be at your highest marginal rate!

Number 2: Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) are a way to save and invest money intended for medical expenses. As you move into your 50s and beyond, these types of accounts can play a larger role in your retirement savings.

HSAs were created to be used in concert with High Deductible Health Plans (HDHPs) to allow employees to save money, pre-tax, to cover the high deductibles. (That’s the caveat – you must have an HDHP to qualify for an HSA).

These accounts provide tax-advantaged savings for current or future medical expenses, including deductibles, co-insurance, prescriptions, vision expenses, and dental care. In certain circumstances – for instance, if you need to use COBRA coverage to bridge a gap in healthcare – they can also be used for premiums. Unused balances are carried over to the following year, funds never expire, and they can be passed on to a beneficiary after death.

HSAs Have Significant Tax Advantages

HSAs are typically referred to as having a “triple tax advantage”, because:

  1. Accounts are funded with pre-tax dollars
  2. Interest or investment growth is not taxed, and
  3. If used for qualified medical expenses, your withdrawals are not taxed.

However, if you do use withdrawals for non-medical expenses, they are taxed at your regular rate and there is no penalty.

For this reason, HSAs can become an IRA of sorts, especially at age 65 when you qualify for Medicare.

Catch-Up Contributions for HSAs

The maximum contribution for an individual in 2021 is $3,600, and for a family, it’s $7,200. If you are over 55, you can contribute an additional $1,000 to either the individual or family maximum.

Retirement Savings for People Over 50

Even if you are currently underfunded for retirement, Prana Wealth can help you formulate a plan to get there comfortably. Working together with you, we can implement tax-advantaged savings and investing strategies that will put your money to work and get you on track.

If you’d like help creating a plan for a worry-free retirement, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.

As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.


The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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