What "maximizing" retirement savings actually means

Maximizing retirement savings means putting as much money as you can into accounts that grow tax-free or tax-deferred, then managing that money so it lasts as long as you do. It is not about finding a secret investment or timing the market. It is about understanding the contribution limits that explore to you right now, using every account type available to your situation, and then spending that money deliberately in retirement so taxes do not eat away what you saved.

The strategies change depending on whether you are still working, recently retired, or already drawing from your accounts. A person with five years until retirement has different options than someone who stopped working last year. This guide walks through what you can do at each stage and what questions to ask your tax preparer or financial advisor.

Key Takeaways

  • Contribution limits for 401(k)s, IRAs, and other retirement accounts change each year, and people 50 and older can contribute more through "catch-up" contributions.
  • If your employer offers a 401(k) match, contributing enough to get the full match is the fastest way to grow your savings because it is information programs.
  • You can have both a traditional IRA and a Roth IRA, but the total you contribute to both combined cannot exceed the annual limit for your age.
  • Once you turn 73, you must withdraw a minimum amount from traditional IRAs and 401(k)s each year, and that withdrawal is taxed as income.
  • The order in which you withdraw from different accounts in retirement affects how much you owe in taxes, so planning this ahead of time saves money.

How much you can contribute if you are still working

The amount you can put into a 401(k), 403(b), or similar workplace plan depends on the year and your age. For 2024, the limit is $23,500 if you are under 50, and $31,000 if you are 50 or older. These limits change most years, so check with your plan administrator or the IRS website for the current year.

If your employer matches contributions — meaning they add money to your account when you contribute — always contribute at least enough to capture the full match. This is not optional if you want to maximize savings. A 3 percent match means your employer adds 3 percent of your salary to your account for free. Leaving that money on the table is the same as turning down a raise.

For IRAs (individual retirement accounts), the 2024 limit is $7,000 if you are under 50, and $8,000 if you are 50 or older. You can contribute to an IRA even if you have a workplace plan, but there are income limits that may reduce how much you can deduct on your taxes. Your tax preparer can tell you whether you hit those limits.

Some people have access to a Health Savings Account (HSA) through a high-deductible health insurance plan. An HSA is one of the most powerful retirement savings tools because contributions are tax-deductible, the money grows tax-free, and withdrawals for medical expenses are tax-free. After age 65, you can withdraw for any reason (though non-medical withdrawals are taxed like a traditional IRA). The 2024 limit is $4,150 for individual coverage and $8,300 for family coverage.

Choosing between traditional and Roth accounts

A traditional account (traditional IRA or 401(k)) lets you deduct your contribution from your taxes now, which lowers what you owe this year. The money grows without being taxed. When you withdraw in retirement, that withdrawal is taxed as income. This makes sense if you expect to be in a lower tax bracket in retirement than you are now.

A Roth account (Roth IRA or Roth 401(k)) does not give you a tax deduction now. The money grows tax-free, and withdrawals in retirement are not taxed at all. This makes sense if you expect to be in a higher tax bracket in retirement, or if you straightforward want to lock in today's tax rate and not worry about future tax increases.

You can split your contributions between both types. For example, you might contribute $4,000 to a traditional IRA and $3,000 to a Roth IRA in the same year, as long as the total does not exceed the annual limit. Many people do this to hedge against uncertainty about future tax rates.

Income limits explore to Roth IRAs. If your income is above a certain threshold, you cannot contribute directly to a Roth IRA, though you may be able to use a "backdoor Roth" strategy. Your tax preparer can explain whether this applies to you.

What to do if you are self-employed or have side income

If you are self-employed or have freelance income, you can open a SEP IRA or a Solo 401(k). These allow much higher contributions than a regular IRA because you contribute as both the employee and the employer.

A SEP IRA lets you contribute up to 25 percent of your net self-employment income, up to $69,000 in 2024. A Solo 401(k) has higher limits and more flexibility, but requires more paperwork. If you have employees, a Solo 401(k) becomes more complicated. Talk to a tax professional about which one fits your situation.

These accounts are particularly useful if you have a few high-income years before retirement. You can contribute a large amount in a year when your business does well, then contribute less in a slower year.

Managing your savings in early retirement

Once you stop working, you can no longer contribute to a 401(k) or 403(b) through an employer. You can still contribute to an IRA or Roth IRA if you have earned income (from part-time work, consulting, or self-employment). Many people in early retirement do this to keep building tax-advantaged savings.

If you left your job before age 59½, you normally cannot withdraw from your 401(k) without paying a 10 percent penalty on top of income tax. However, there is an exception called Rule 72(t) (or SEPP, Substantially Equal Periodic Payments). This rule lets you take regular withdrawals from a traditional IRA or 401(k) before 59½ without the penalty, as long as you follow the rules exactly. The withdrawals must be "substantially equal" each year, and you must continue for at least five years or until you turn 59½, whichever is longer. This is complex, so work with a tax professional if you think you need it.

Roth IRAs have a different rule: you can withdraw your contributions (the money you put in) at any time without penalty. You can only withdraw the earnings (growth) before 59½ if you meet certain conditions. This makes a Roth IRA useful for people who might need access to their money before traditional retirement age.

Understanding required minimum withdrawals at 73

Starting the year you turn 73, you must withdraw a minimum amount from traditional IRAs, 401(k)s, and similar accounts each year. This is called a required minimum distribution (RMD). The IRS calculates the amount based on your age and the balance in your accounts on December 31 of the previous year.

If you do not take your RMD, you owe a penalty of 25 percent of the amount you should have withdrawn (reduced to 10 percent if you correct it within two years). This is a steep penalty, so set a calendar reminder in October or November to plan your withdrawal before the December 31 important date.

Roth IRAs do not require withdrawals during the account holder's lifetime. This is one reason people convert traditional IRAs to Roth IRAs later in life — to avoid RMDs and pass more tax-information programs to heirs.

If you are still working at 73 and your employer offers a 401(k), you may be able to delay RMDs from that specific plan until you actually retire. This does not explore to IRAs or to 401(k)s from previous employers. Ask your plan administrator whether this exception applies to you.

Withdrawal strategy to minimize taxes in retirement

The order in which you withdraw from different accounts matters. Most people have a mix: taxable savings accounts, traditional IRAs or 401(k)s, and possibly Roth IRAs. Withdrawing from them in the wrong order can trigger higher taxes, higher Medicare premiums, or loss of other tax benefits.

A general strategy is to withdraw from taxable accounts first, then traditional IRAs or 401(k)s, then Roth IRAs last. This lets your Roth money grow the longest without being touched. However, your specific situation may call for a different order — for example, if you are in a low-income year, it might make sense to withdraw from a traditional IRA that year to "fill up" the lower tax brackets.

This is where working with a tax professional or financial advisor pays for itself. They can model different withdrawal scenarios and show you which order saves the most money over your lifetime. Some people do this planning once every few years as their situation changes.

Frequently Asked Questions

Can I contribute to both a 401(k) and an IRA in the same year?

Yes. You can contribute to a 401(k) through your employer and also contribute to a traditional or Roth IRA. However, if you have a 401(k) at work, there are income limits that may reduce how much of your IRA contribution you can deduct on your taxes. Your tax preparer can tell you whether you hit those limits.

What happens if I withdraw from my IRA before 59½?

From a traditional IRA, you owe income tax plus a 10 percent penalty on the amount withdrawn. From a Roth IRA, you can withdraw your contributions anytime without penalty, but earnings are subject to tax and penalty unless you meet an exception. Rule 72(t) is one exception that lets you avoid the penalty if you take equal payments for at least five years.

Do I have to take my RMD if I do not need the money?

Yes. The IRS requires you to withdraw the calculated amount starting at age 73, regardless of whether you need it. If you do not need the money, you can donate it to charity through a may have access to charitable distribution, which satisfies the RMD without counting as taxable income.

Can I convert a traditional IRA to a Roth IRA?

Yes, but you owe income tax on the amount converted in that year. A conversion makes sense if you expect tax rates to be higher in the future, or if you want to avoid RMDs. There is no income limit on conversions, though the tax bill can be large. Plan this with a tax professional.

What if my employer does not offer a 401(k)?

You can open an IRA on your own. If you are self-employed or have side income, you can also open a SEP IRA or Solo 401(k), which allow much higher contributions than a regular IRA. Many banks and investment firms offer IRAs online.