Year-end and quarterly bonuses are great ways to not only plan for short-term needs, they also serve as excellent sources to help fund your retirement strategy. Plus, if you invest a portion of your bonus in a retirement account, you might be able to forego paying the upfront taxes on that bonus money.
So, are you ready to put your bonus money to work for your future? Here are some ideas:
Put that money in a tax-advantaged account like a Roth IRA, which stands for individual retirement account. It’s a long-term strategy designed to deliver tax-free growth and tax-free withdrawals in retirement. You can’t touch the money you contribute to it until you hit 59½. After that, you can withdraw your money whenever you want without paying any federal taxes and without a penalty.
Chances are, you’re already contributing to your company’s 401(k). This is a good opportunity to pump a bit more money into your account and take advantage of the compounding interest. Keep in mind, there are limitations to how much you can contribute to your 401(k). The current cap is $19,500.
Have you ever thought about an insurance policy as part of your retirement strategy? Studies show that people are living well beyond their retirement date. Which is great. But, as a result, the potential for medical needs and expenses go up. Paying into a long-term healthcare insurance policy can serve as money earmarked to cover those bills, essentially protecting your retirement nest egg from being gobbled up by medical fees.
This new platform is a bit outside of the traditional retirement investing world, but you can contribute a portion or all of your bonus and begin investing immediately. Also referred to as robo advisors, these are online investment tools that provide strategy based on mathematical rules and/or special algorithms. These are self-management investing apps with no financial expert on the other end of the line.
In the end, your bonus represents opportunity. An opportunity to plan for tomorrow while giving your money the chance to make more money. Win-win.
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