Hoping to start saving for retirement early on? By eating out a little less, you could save tens of thousands of dollars towards your retirement.
Individual retirement accounts (IRAs) allow you to invest money in your future, and in some cases, even get a tax deduction.
Retirement investing is not as difficult as it might sound, nor does it require a dramatic change in your current lifestyle. With compound interest and average return rates, even modest contributions toward your company-matched retirement plan could turn a little into a lot by the time you’re ready to retire.
Advantages to a Roth IRA are:
- contributions can be withdrawn tax-free at any time.
- you can leave the proceeds to your heirs.
- if you’re under 50, you can contribute up to $5000 per year (or up to $6000 per year, if you’re over 60).
Disadvantages to a Roth IRA are:
- you can not use the account as a collateral for a personal or business loan.
- your contributions are not tax-deductible.
Advantages to a Traditional IRA are:
- contributions are tax-deductible today.
- it can be converted to a Roth IRA.
- if you’re under 50, you can contribute up to $5000 per year (or up to $6000 per year, if you’re over 60).
Disadvantages to a Traditional IRA are:
- you pay taxes (both state and federal) on all future gains.
- you cannot leave the proceeds to your heirs; you must begin taking withdrawals when you are 70 1/2 years old. If you don’t, the IRS automatically confiscates half of your IRA.
- it’s much harder to get money out of it if needed.
If your employer offers a 401(k) plan, take advantage of it. It works similar to a Traditional IRA. Your contributions are automatically deducted from your pre-tax earnings. It is difficult to get money out of a 401(k) plan unless you can prove financial hardship, but sometimes you can borrow money from it.
Contributing to a retirement plan can become addictive, and is the best way to plan for a secure future.