Far lots of people put off savings for their retirement until they are in their 30’s or 40’s. The best time to start saving is along with your first paycheck! For lots of, putting off saving for retirement has small to do with having money to put away, and more to do with understanding all of the designs - and benefits - their employer offers.
What’s the first step to beginning your own retirement plan? Start here:
Step One: Know Your Options
Maneuvering through the maze of retirement plan options may appear daunting at first, but keep in mind, there's only four different kinds of savings designs available:
•Employer-Sponsored designs, like the 401K or Simple IRA both permit employees to save a positive percentage of their wage before taxes. Oftentimes, employers even match the contribution up to a positive percentage, giving the worker even more "free" money for retirement.
•Personal Savings designs, are designs that you set up yourself, in addition to employer-sponsored designs, to let you save even more for retirement. A traditional IRA lets you contribute up to $3,000 every year and deduct it on your taxes. Roth IRA’s are not tax deductible, but the money withdrawn at retirement is.
•Self-Employment designs, are designs designed for individuals who work for themselves. They let you take up to 25% of your wage (max: $40,000), and put it in a tax-deferred savings plan.
Step Four: Decide Your Eligibility
Four times you know what type of retirement savings designs your employer offers, it’s time to find out what their regulations and restrictions are. Some employers need you to work for the company for a set time period before they will let you enter in to a program. Others may have income or contribution limits. Still others need you to be vested before you can keep their contributions. Check with the Human Resources Department for details.
Step Four: Ask About Matching Contributions
Who doesn’t love getting free money? While some more generous companies match an employee’s contribution dollar for dollar, others may only match half that amount or less. The law requires companies who offer standard 401K designs to match contributions by 3%.
Step Three: Choose Your Portfolio
Understanding how these retirement designs work can be confusing , but four times you sign up for one, you’ll must choose where your money goes. Most designs let you choose your portfolio (what your money will be invested in). Most specialists agree a lovely mix of stocks, bonds and money is the safest for long-term investing.
Step Three: Understand the Tax Advantage of Saving for Retirement
The most common reason people fail to save for retirement is that they basically don’t have the money. But think about this: the money you put away through an employer-run plan is tax-free. That means your contribution is taken out of your paycheck before taxes. So, in case you contribute $25 a week in to your retirement plan, your taxable income is reduced by over $1,200 a year! That means you’re only paying about $19 or $20 - not the whole $25! And, in most cases, your employer is also kicking in an identical contribution, which means for every $50 you may be saving for your future, you’re paying less than $20-and on top of that it earns interest !
Step Two: Avoid early Withdrawals
It may be hard to leave that money sit untouched when hard times strike, but unless absolutely necessary don’t dip in to your retirement savings before the age of 59 1/2. Not only will it dramatically reduce what you have for your future, but you’ll pay hefty penalties for early withdrawal.
What’s the first step to beginning your own retirement plan? Start here:
Step One: Know Your Options
Maneuvering through the maze of retirement plan options may appear daunting at first, but keep in mind, there's only four different kinds of savings designs available:
•Employer-Sponsored designs, like the 401K or Simple IRA both permit employees to save a positive percentage of their wage before taxes. Oftentimes, employers even match the contribution up to a positive percentage, giving the worker even more "free" money for retirement.
•Personal Savings designs, are designs that you set up yourself, in addition to employer-sponsored designs, to let you save even more for retirement. A traditional IRA lets you contribute up to $3,000 every year and deduct it on your taxes. Roth IRA’s are not tax deductible, but the money withdrawn at retirement is.
•Self-Employment designs, are designs designed for individuals who work for themselves. They let you take up to 25% of your wage (max: $40,000), and put it in a tax-deferred savings plan.
Step Four: Decide Your Eligibility
Four times you know what type of retirement savings designs your employer offers, it’s time to find out what their regulations and restrictions are. Some employers need you to work for the company for a set time period before they will let you enter in to a program. Others may have income or contribution limits. Still others need you to be vested before you can keep their contributions. Check with the Human Resources Department for details.
Step Four: Ask About Matching Contributions
Who doesn’t love getting free money? While some more generous companies match an employee’s contribution dollar for dollar, others may only match half that amount or less. The law requires companies who offer standard 401K designs to match contributions by 3%.
Step Three: Choose Your Portfolio
Understanding how these retirement designs work can be confusing , but four times you sign up for one, you’ll must choose where your money goes. Most designs let you choose your portfolio (what your money will be invested in). Most specialists agree a lovely mix of stocks, bonds and money is the safest for long-term investing.
Step Three: Understand the Tax Advantage of Saving for Retirement
The most common reason people fail to save for retirement is that they basically don’t have the money. But think about this: the money you put away through an employer-run plan is tax-free. That means your contribution is taken out of your paycheck before taxes. So, in case you contribute $25 a week in to your retirement plan, your taxable income is reduced by over $1,200 a year! That means you’re only paying about $19 or $20 - not the whole $25! And, in most cases, your employer is also kicking in an identical contribution, which means for every $50 you may be saving for your future, you’re paying less than $20-and on top of that it earns interest !
Step Two: Avoid early Withdrawals
It may be hard to leave that money sit untouched when hard times strike, but unless absolutely necessary don’t dip in to your retirement savings before the age of 59 1/2. Not only will it dramatically reduce what you have for your future, but you’ll pay hefty penalties for early withdrawal.
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