Save early and automatically – and keep an eye on the clock
Saving for retirement requires as much discipline as watching your diet or exercising regularly. But if you learn to delay immediate rewards – whether they're bagels or baubles – you'll be in better shape for a retirement that's both physically healthy and financially sound.
First step, make it easy for yourself by contributing to an employer plan that automatically withdraws from your paycheck each week or establish a monthly direct deposit into an IRA to build your savings without extra effort. Also, consider the amount and source of any additional savings;
- Using a raise to increase your retirement savings
- Earmarking bonuses for one-time savings deposits
- Setting aside part of your tax refund in an IRA
Second, choose the right kind of savings vehicle. Popular options include:
- 401(k) s and other employer-match programs, which are usually the first choice, for those who employer offers such plans
- Retirement accounts for the self-employed and traditional IRAs, which may give you a deduction that lowers this year's tax bill
- Contributions to a Roth IRA, which don't lower taxes now but do allow for tax-free, qualified distributions
In case of a change in employers, determine how to handle existing retirement savings. Options include:
- Leaving retirement money in the former employer's plan depending upon specific plan rules
- Moving the funds into the new employer's plan if that's an option
- Transferring the money into an IRA
- Taking a cash distribution
Keep in mind that funds withdrawn or otherwise not rolled over within 60 days into a qualified plan or IRA are subject to tax and penalties and can really eat into the balance of an account that took hard work and delayed gratification to build.
For more information about tax planning and retirement, contact our article contributors Gary Newell, Scott Martin, Mary Zoellner or any H&R Block tax professional at one of our offices below.
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