The most anxiety-inducing step when it comes to retirement funds is beginning them. Therefore, our first tip is to start today. You’ll regret the countless times you said “I’ll start tomorrow” a year from today, or even a week from today. Even if it’s a small amount, start contributing as soon as possible as it will energize and motivate you to continue doing so.
Contributing to a 401(k), which your company likely offers to match or at least contribute a certain percentage, is a great way to start saving for retirement. We advise you take a look at your 401(k) program and educate yourself in order to take full advantage. You should also aim to open an Individual Retirement Account, or IRA, if you want another method of saving for retirement.
When it comes to an IRA, you have two options depending on your income level and other factors. Contributing to a Traditional IRA may be tax-deductible and the investment earnings have the opportunity to grow tax-deferred until you make withdrawals during retirement. If you meet the income eligibility requirements for a Roth IRA, you have the option to contribute to that, which is funded with after-tax contributions. Once you turn 59 ½, qualified withdrawals, including earnings, are federal-tax-free (and may even be state-tax-free!) if you’ve held the account for up to five years.
Our last tip, if you are age 50+, is to take advantage of catch-up contributions. One of the reasons we mention to start saving to your 401(k) or IRA early, is because yearly contributions are limited. Yet upon reaching age 50, you are eligible to make catch-up contributions where you can go beyond normal limits. This gives you the opportunity to make up for lost time.
Good luck and don’t forget that it’s never too late!