Whether you’re approaching retirement or planning for the years ahead, it’s crucial to take proactive steps to fortify your financial future. In this article, EsqWealth shares five quick strategies tailored to individuals with substantial assets, designed to maximize your wealth accumulation as you prepare for retirement.
1. Maximize tax-advantaged contributions
Get the most out of your savings by maximizing tax-deferred contributions to your IRAs and 401(k) plans. In 2023, you and your employer can contribute up to a total of $66,000 to your traditional 401(k). If you don’t have a 401(k) or want to save more, you can contribute $6,500 to an IRA.
2. Take advantage of catch-up contributions
If you are over age 50, you can exceed the standard annual contribution limits of your IRA and 401(k) accounts. This allows investors close to retirement to supercharge their savings, putting away more tax-deferred funds for the future. In 2023, you can use catch-up contributions to put away an additional $1,000 in your IRA and an additional $7,500 in your 401(k).
3. Explore your HSA investment options
If you have a high-deductible insurance plan you can use an HSA to set aside pre-tax funds to spend tax-free on deductibles, co-pays, and other qualified medical expenses either now or in the future. If you’re single, you can deposit up to $3,850 each year into your HSA, and up to $7,750 for family coverage for your spouse and/or children.
HSA account holders can invest the funds in stocks, bonds, mutual funds, or ETFs, but only a small fraction take advantage of this option. According to a study by the Employee Benefit Research Institute, only 9% of HSA account holders currently invest their funds—everyone else is keeping their HSAs in cash.
Investing allows your HSA funds to potentially grow over time. That can provide extra funds for health care costs now, and, after age 65, you can make taxable withdrawals from your HSA for any reason without penalty. Explore your HSA investment options with your financial advisor to maximize the potential of your HSA funds after you’re no longer working.
4. Consider a Roth conversion
Roth IRA contributions are limited by how much you make. For the 2023 tax year, you can only contribute the maximum if your modified adjusted gross income (MAGI) is less than $138,000 ($218,000 if you’re married filing jointly). Beyond this income threshold, your contribution limit is decreased until it phases out entirely at $153,000 for single filers, or $228,000 for joint filers.
If you make too much money to fund a Roth IRA, you may be able to roll over funds from your traditional IRA account or from a 401(k) account to a Roth IRA to provide a bucket of tax-free income you can draw from when you retire. If these contributions were initially made pre-tax, when you roll the funds over to a Roth, you’ll have to pay taxes on them. From there, they can grow tax-free, and you won’t pay taxes on them when you make withdrawals.
Understanding the tax implications of a Roth IRA conversion becomes straightforward when you have only one traditional IRA. However, if you hold multiple IRAs, the process can become more intricate due to the IRS’s pro-rata rule. This rule necessitates the inclusion of all your traditional IRA assets in the calculation, encompassing IRAs funded with both pretax (deductible) and after-tax (nondeductible) contributions. Consequently, you’ll be required to pay taxes proportionate to the original account’s pretax contributions and earnings, adding a layer of complexity to the conversion process.
5. Assess your annuity options
If you still have retirement money to invest after you’ve maximized your 401(k) and IRA options, an annuity may be suitable. An annuity is an insurance product that you can purchase with a lump sum of cash or a series of payments. Depending on the specific annuity, you may be able to access market upside while also guaranteeing a level of income in retirement. In May of this year, EsqWealth prepared an article about how annuities can be a powerful tool for retirement planning and a recession hedge.
You have numerous avenues available to optimize your savings and secure a comfortable retirement income. Recognizing that each individual’s financial circumstances are distinct, EsqWealth encourages you to get in touch with us should you have any queries or apprehensions regarding your particular situation. Together, let’s ensure that your wealth is strategically managed to serve you impeccably during your retirement years. Your financial well-being is our priority.
 “Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits,” IRS.gov, 25 October 2022, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
 “401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500,” IRS.gov, 15 March 2023, https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500
 “Retirement Topics – Catch-Up Contributions,” IRS.gov, 26 October 2022, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
 “Amount of Roth IRA Contributions That You Can Make For 2023,” IRS.gov, 15 March 2023, https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023
 “Today’s Annuities: A Powerful Tool for Retirement Planning and a Recession Hedge,” EsqWealth.com, May 16, 2023, https://www.esqwealth.com/articles/todays-annuities-a-powerful-tool-for-retirement-planning-and-a-recession-hedge