How to Boost Your IRA Contributions

A recent report from Fidelity reported that among its clients with an Individual Retirement Account (IRA) the average annual contribution has been around $4,100 to $4,300 for the past few years.

Saving anything is good news. And $4,000 or so is a significant win. But it also leaves room for improvement.

This year anyone younger than 50 years old is allowed to contribute up to $6,000 in an IRA. For those at least 50 years old the limit is $7,000 this year.

If you're not yet saving the annual maximum, I want you to push yourself to up your contribution game. Managing to contribute the maximum will take your IRA savings from good to great.

Let's say you have been saving around $4,000 a year, but are determined to bump that up to the $6,000 limit. A one-time $2,000 investment could be worth more than $8,000 in 25 years, assuming an annualized return of 6%. That's just for one year! Manage to save the max each year is going to pay off with a much bigger pot of retirement savings down the line.

Okay, so now we turn to the big question: How to find the money to boost your IRA contributions?

I have some ideas:

• Think small.

Don't focus on the big number of $2,000, or $3,000 or whatever you need to come up with to be able to contribute the maximum into your IRA. If you want to boost your IRA savings this year by $2,000, focus on the goal of saving $167 a month or about $42 a week, or $6 a day. That can seem much more achievable, right?

• Set aside your daily/weekly savings.

Set up a separate savings account linked to your checking account. This is free and easy to do online at your bank where you have a checking account. Then set up daily or weekly transfers from your checking into this new separate "retirement" savings account. This bank savings account is only a temporary step--every month or quarter when you have a nice pot of money saved up, you are to transfer that to your IRA. (Again, online transfers are free and easy between your bank and the brokerage where you have your IRA account.)

• Make it a priority.

Any time you have more money than you need in your checking account, make an extra contribution to your IRA. Getting a tax refund? Your IRA is a good use of that money. Got a bonus or a raise? Again, adding to your IRA contribution should be on the short list of how to make the best use of that money.

• Review your big monthly expenses.

Much of our spending is out of habit. I think it's a valuable exercise to review all your habitual spending and ask yourself if you still need to be using your money this way.

For example, if your work life has become more remote, I challenge you to think through if you really need a car (or if your household needs two cars). You may find that public transportation or ride share works just fine and will be a lot less expensive than a car that saddles you with a monthly loan payment, gas, insurance and maintenance costs.

And I will repeat my storage facility advice from last month: If you haven't used what's inside a storage unit for at least a year, I question whether you really need to keep it. Is it truly an heirloom, or of such great sentimental value that it is worth the $150 or more monthly fee? Might you have a better use for that $150 or more a month?