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By timestaff
July 9, 2013
Pile of money
B.A.E. Inc.—Alamy

My 401(k) contribution has been capped at 6%. How do I save more for retirement? — Frankie L., Arlington, Va.

As you’ve found, the IRS limits 401(k) contributions by high earners — chiefly those who earned more than $115,000 in 2012 — unless their company ensures that lower-paid workers are also saving for retirement.

Start by putting $5,500 ($6,500 if you’re at least 50 by year-end) into a Roth IRA, which offers tax-free withdrawals in retirement, says Moline, III., financial planner Marty Kurtz.

In 2013 your allowed contribution falls to zero if your income tops $188,000 ($127,000 if you’re single), but anyone under 70½ with earnings can fund a nondeductible IRA and then convert it to a Roth. But you may owe taxes on this back-door deposit if you have other traditional IRAs.

Then buy low-fee, tax-efficient funds in a taxable account, says Kurtz. Index funds work well; their infrequent trading minimizes taxable gains.