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How to Save for Retirement on Less Than $40,000 Per Year

By U.S. News & World Report

Boost your balance.

Saving for retirement is especially difficult when you earn a small salary. But tucking away even a small amount might qualify you for tax breaks, guarantee you an employer match and get compound interest working on your behalf. Here’s how to begin building wealth for retirement when you have a modest income.

Get help from your employer.

A 401(k) match or other type of employer contribution is likely to be the fastest way to build wealth. If your company will provide 50 cents for each dollar you save in the 401(k) plan, that’s a 50 percent return on your investment. A dollar-for-dollar 401(k) match will double your money. Find out how much you need to save to get the maximum possible 401(k) match, and then make every effort to deposit that amount in your retirement account.

Qualify for tax breaks.

You can defer paying income tax on the earnings you contribute to a 401(k) or IRA. If you are in the 15 percent tax bracket and deposit $1,000 in an IRA, you will save $150 on your current tax bill. Income tax will not be due on that money until you withdraw it from the account.

Claim the saver’s credit.

In addition to the tax deduction for saving in a 401(k) or IRA, low- and moderate-income workers might qualify for the saver’s credit. Employees whose adjusted gross income is below $30,750 for individuals and $61,500 for couples in 2016 are eligible to claim the credit, which is worth between 10 and 50 percent of retirement account contributions, up to $2,000 for individuals and $4,000 for couples. For example, a worker who earns $30,000 and manages to put $1,000 in a 401(k) could get a tax credit worth $100.

Consider a Roth account.

A relatively low income usually means you pay a lower income tax rate than people who earn more. If you save in an after-tax Roth IRA or Roth 401(k), you can lock in your current low tax rate and set yourself up for tax-free income in retirement. For example, if you save $1,000 in a Roth IRA and pay 15 percent tax, or $150, on the contribution, after age 59 1/2, you will be able to withdraw that money and the investment earnings without having to pay additional income tax on it.

Check out the myRA.

America’s newest retirement account, the myRA, has only one investment option: a U.S. Treasury retirement savings bond that is guaranteed never to decline in value. The account is aimed at those who don’t have a 401(k) account at work, but it is open to most workers with earned income. The myRA accepts small contributions and doesn’t have any low-balance fees. You can contribute via payroll deduction, direct deposit from a checking or savings account or redirect your tax refund to the account. However, once your balance hits $15,000 or the account turns 30 years old, you will be required to transfer your savings to a Roth IRA.

Watch out for fees.

Excessive retirement account fees will reduce your investment returns. Check out your 401(k) plan’s fee disclosure statement to quickly determine how much each fund costs to own, and consider switching funds if you can find a similar alternative that’s less expensive. Also, pay attention to sales changes and fees you might incur if you take specific actions. If all of the funds in your 401(k) plan charge fees in excess of 1 percent, it could be worth politely asking for better options.

Avoid early withdrawals.

If you withdraw money from a traditional IRA before age 59 1/2 or from a 401(k) before age 55, you will be charged a 10 percent early withdrawal penalty and regular income tax on the amount withdrawn. A worker in the 15 percent tax bracket who takes a $1,000 IRA withdrawal at age 40 will be charged $250 in taxes and penalties. It’s important to establish an emergency fund outside of your retirement accounts so you can avoid retirement account early distribution penalties.

Start with a small amount.

You don’t need to save a large amount to get investment returns compounding on your behalf. Beginning by saving $10 or $20 per month can get you into the habit of saving. As you get promotions and raises, you can increase the amount you are tucking away. Or you can sign up for your 401(k) plan’s automatic escalation program, which will increase your savings rate over time without any additional action required.

Have the money withheld from your paycheck.

If you know you won’t stay motivated to save for retirement every month, have the money withheld from your paycheck before you ever get a chance to spend it. This usually happens automatically when you sign up for a 401(k) plan, but you can also elect to have part of your paychecks directly deposited into an IRA or myRA. Alternatively, you could set up recurring transfers from your checking account to a savings or retirement account. Make saving the default option rather than something you have to remember to do.

More from U.S. News

10 Ways to Get Ready for Retirement After Age 50

10 Ways to Repair Your Retirement Finances

9 Retirement Planning Deadlines You Shouldn’t Overlook

How to Save for Retirement on Less Than $40,000 Per Year originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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