Planning for retirement is a daunting task. Many people are unsure of where to start and may not begin saving until they are older, or in some cases, not at all. This is problematic, especially because if you ever do want to retire, you may still find yourself needing employment. Throughout life, we all reach a standard of living we’re comfortable at. Planning for retirement early is the best way to keep that standard going long after we’ve stopped punching the clock.
So how can you start saving for retirement?
Join Your Employer’s 401k Plan
Many employers offer a 401k plan as part of their benefits package. Take advantage of this and join as soon as you are eligible to. This is usually 60 to 90 days after employment, so if you are approaching that deadline at your current job, be sure to ask HR how you can apply for that.
Some employers will match your 401k, but others do not. In any case, it’s a good idea to start stowing away money as soon as possible. You will usually be given the choice to place a percentage or specific amount of dollars from each paycheck into the account. In some cases, you may be auto-enrolled into it. It’s always best to ask your HR department about this if you’re unsure of your company’s program.
You want to be careful and ask as many questions as you can regarding the 401k plan with your employer. Some plans will require higher-than-average fees should you withdraw your contributions to the plan before retirement, while others may refuse to even give you that option. The best way to avoid this problem altogether is to only contribute what you can afford to put in to your 401k account.
My Employer Doesn’t Offer a 401k Plan
If your employer doesn’t offer one, or if you just don’t wish to enroll in their plan, there are other retirement saving options.
The most popular “other” option is to open a Roth IRA. An IRA is an individual retirement account that will allow you to put after-tax funds into it at your own pace. However, there is an annual cap of $5,500. Once you reach that cap, you cannot put any more funds into it until the next year. Another consideration to keep in mind is that if you are a single tax filer who has a modified adjusted gross income of more than $137,000 annually, you cannot use a Roth IRA.
Traditional IRAs function in a very similar way but are not restricted by an annual gross income limit. You can also gain a tax break with a traditional IRA – the funds you put into it over the year can be deducted on your personal tax return. Roth IRAs do not allow for that tax break. However, when it comes to retirement time, you won’t pay any taxes on your IRA earnings or withdrawals with the Roth IRA, while a Traditional IRA will be taxed like regular income when you withdraw the funds.
Saving for your retirement is an important step in your financial future. The faster you start, the more you can save up. Whether through a 401k or an IRA, growing your money for your retirement should begin now. Do you have more questions regarding your financial future? Contact Madison Randolph today to find out more about how you can start saving for retirement!