Most analysts expect that volatility in the stock market will continue amid concerns about inflation, rising interest rates, the Russian invasion of Ukraine, and the effect of possible virus variants.

However, even when markets fluctuate, there can be an opportunity. Now is an excellent time to review and, perhaps change, your retirement plan. Here are some helpful strategies, along with some techniques that you may not be aware of, to reduce your investment risk and maximize your tax savings.

First, there is no need to panic. Many of us who remember the steep losses in our 401ks in 2008 have been rattled by recent market declines and may need some comfort right now to prevent us from selling off. Here is your reassurance – If you invested $100k in the S&P 500 at the beginning of 2009, you would have about $684k at the beginning of 2022, which is a return on investment of 584%, or 15.83% per year.

Your best tax shelter

Also, it is not a good idea to limit how much you contribute to your retirement plan this year out of fear, especially if you need a tax deduction. What makes tax-deferred retirement plans still one of the best and last remaining tax shelters is that a contribution to your plan is deductible on your return, and the taxes on the retirement growth are deferred.

For example, if you contribute $20,000 to your 401k balance this year and are at a 40% federal and state combined effective tax rate, your immediate tax savings would be $8,000 ($20,000 x .40), which is significant.

After the tax savings, your investment cost was only $12,000 and not $20,000. Because you were able to invest more due to the tax savings, and since the account will grow tax-deferred, your ending retirement balance will be much higher than if you invested the funds in a non-retirement account with after-tax dollars.

Self-directed IRA

If you are hesitant to put more of your hard earned money in the financial markets, consider a self-directed IRA to invest in alternatives, such as real estate (including rentals and farmland), precious metals, and even business startups. Alternative investments hedge against stock market volatility, can result in higher returns, and provide more flexibility. To open a self-directed IRA (SDIRA), you will need an SDIRA custodian that offers nontraditional assets.

Some employers also offer self-directed 401(k)s, and the custodian is the plan administrator. The same contribution limits apply to self-directed accounts as for regular IRA and 401(k) plans.

SDIRA firms cannot provide investment advice, meaning investment research is your responsibility. Also, investing in alternative investments can come with greater risk, and some investments have income and net worth restrictions or require the investor to be a qualified (or accredited) investor.

Unfortunately, for both traditional and self-directed retirement plans, the maximum annual contribution will generally not be enough for most people to retire comfortably. If you are 50 or over, the most you can contribute annually to your 401k is only $27,000 a year. The maximum IRA or Roth IRA contribution per year, if you are over age 50, is only $7,000. Unlike defined benefit pension plans offered by larger employers, 401ks and IRAs are defined contribution plans and do not provide guaranteed fixed retirement income.

If you are looking for more financial security in retirement, here are two additional alternative retirement options (of the many that are available).

Defined benefit plans

A defined benefit plan guarantees a specific benefit or payout upon retirement, and it operates more like a traditional pension plan. You can set up a defined benefit plan for you and your employees if you own a business. A defined benefit plan allows the business owner to contribute much more for retirement because the account needs to grow large enough to provide the required annual payment when the owner retires.

Defined benefit plans are especially powerful when the business owner is closer to retirement age, and it is possible to fit 20 years of savings into 10.

The ideal investor in a defined benefit plan will be able to put away $100,000-$150,000 a year (although more is often allowed). They should have few (if any) younger employees since the employer funds the plan, and contributions are partially based on age. The employer (you) also receives a deduction for the contribution, and you do not pay taxes on the earnings until you retire.

Defined benefit plans do have significant risks. Employers are required to make minimum contributions each year. The requirement is not dependent on how well the business is doing; even if you have a terrible year, you still must contribute or face taxes and penalties.

Deferred Ccharitable Gift Annuity

A Deferred Charitable Gift Annuity is simple to set up, yet it offers a powerful way to save on your taxes and generate fixed income for retirement while helping others. A DCGA involves an agreement between you (the donor) and a charity. The donor transfers cash or other assets to the charity and receives a partial tax deduction and a stream of fixed annual income at a point you specify in the future, which is partially non-taxable for life.

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When the donor dies, the charity keeps what is left. There is no limit to the amount you can contribute, and you can carry forward any unused charitable deduction for five years.

Many use a DCGA when they still need a tax deduction after making the maximum allowed contribution to their traditional retirement plans. As an added tax bonus, you can contribute other assets (not just cash) in exchange for the annuity and avoid capital gains on the sale of the assets. If you support a church, school, or charity, contact their donor relations office for additional information.

These are just a few alternatives to increase the likelihood you will be able to retire in comfort while reducing your current tax burden comfortably. Be sure to discuss all of your retirement options with your CFP and CPA, including Roth conversions.

As “Big” George Foreman, two-time world heavyweight champion, Olympic gold medalist, and entrepreneur, put it, “The question isn’t at what age I want to retire, it’s at what income.”

Michelle C. Herting, CPA, ABV, AEP, specializes in tax planning, trust administrations, and business valuations. She has three offices in Southern California.