Investing your money in retirement accounts offers a tax-free way to build a financially stable future. However, because there are restrictions and penalties placed on accessing retirement funds early, many people are hesitant to make the maximum amount of contributions allowed each year. Despite this concern, the tax consultants at Sharrard, McGee & Co., PA advise their clients that putting anything less than the max limit into their 401(k)s and IRAs is a missed opportunity to grow a substantial nest egg while enjoying significant tax breaks.

What Are the Benefits of Maxing Out Retirement Accounts?

1. Reduce Your Lifetime Tax Obligations

Traditional 401(k) and IRA retirement accounts allow you to defer tax payments on whatever is deposited until you decide to take money out. This means you won’t be obligated to pay income tax on the savings during the years you’re earning the most money, but rather once the income has decreased enough to put you in a lower tax bracket. Contributions will also drop the amount of income you’re responsible for paying taxes on and make you eligible for extra deductions, which a tax consultant can provide guidance on.

2. Leave Behind an Inheritance 

The more money that accumulates in the retirement accounts, the less likely it is you will run out of income in your golden years. If you can build up more than enough for what you need to live on, the rest can be left to loved ones as a sizeable inheritance. You may also avoid paying taxes on it since it will only be taxed once any heirs make a withdrawal from the account. 

3. Avoid Frivolous Spending 

Retirement accounts are a good place to put money for safekeeping. Because of the penalties involved in withdrawing funds early, you will probably want to confer with a tax consultant before pulling anything out unless it’s an emergency. This will eliminate a great deal of unnecessary spending and ensure you’re saving for the future.

Though you might not wish to have a sizable percentage of money wrapped up in retirement accounts should unexpected expenses arise, the benefits of maxing out your contributions are too great to pass up. Additionally, there are a variety of ways to withdraw funds penalty-free, which a tax consultant from Sharrard, McGee & Co., PA can educate you on. They have more than four decades of experience providing accounting and financial services. Contact them in High Point at (336) 884-0410, Greensboro at (336) 272-9777 or visit their website for more information on effective investment strategies.