How Can I Save for Retirement?

cash advancePutting away money today is one of the most important ways you can secure a comfortable future. While there are many options for saving, there are a few types of savings vehicles that offer tax benefits for those in the United States that can make them more favorable than a regular savings or investment account. Here are a few options you may have:

401(k). If you work in the private sector, your employee may offer a 401(k) savings plan. This plan allows you to put away up to $17,000 in 2012 ($17,500 in 2013) tax-deductible, and the money will grow tax-free as well. When you go to take your money out in retirement (after age 59.5), you’ll pay ordinary income tax on the withdrawals. Ideally, your employer will offer to match a portion of your contribution, bolstering your account even further.

If your 401(k) has a Roth option, your contributions will not be tax-deductible, but they will still grow tax-free. Plus, when you go to withdraw, you won’t have to pay income taxes on the withdrawals!

Note: If you are 50 or older, your contribution limits are $5,000 higher than those above.

403(b). The 403(b) is similar to the 401(k), but it exists for public sector employees. It also has both pre-tax and Roth options. The same contribution limits also apply.

IRA. An IRA is an Individual Retirement Account and anyone who has earned income of at least $5,000 can set one up. The contribution limits are $5,000 in 2012 ($6,000 for those over 50) and $5,500 in 2013. The IRA is a great way to save if you don’t have an employer plan and also offers quite a few additional benefits. It also has a Roth option.

SEP-IRA. If you are self-employed, you can set up a SEP-IRA, which allows you to contribute up to the lesser of 25 percent of your income or $50,000. These contributions are also tax deductible.

This is a great resource for understanding the different retirement plans that are out there and the tax benefits they may afford you: http://www.irs.gov/Retirement-Plans/

The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

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