401(k), IRA and Other Ways to SaveYou're at a savings site, so you undoubtedly know the importance of saving money. But are you investing for your retirement as much as you are trying to save on grocery and retail purchases? If not, you should be.Even if you're living paycheck-to-paycheck, your goal should be to live as frugally as possible to eliminate debt and begin putting that money toward savings, retirement and toward buying the things that are important to you - whether that's a home, travel, college education for your children or something else.By planning now, you can ensure that you'll have a nest egg for your retirement and money to do the things you want.Here are the most common investment mechanisms for retirement:401(k)
Many companies offer retirement plans called 401(k) through payroll deductions. You authorize your company to withhold a certain amount of money from each paycheck and invest it on your behalf. You can typically choose from various investment options, from mutual funds to investment contracts.Some companies provide matching donations to employee 401(k) accounts. If your employer matches some or all of your 401(k) amount, this is a set return on your investment aside from what the market does. Who doesn't like free money? If you don't invest in the 401(k), this is a financial benefit of your employment that you're losing out on.Even if your employer doesn't match, a 401(k) plan is a good retirement savings tool, providing a tax-deferred investment.! cincysavers.com extraVesting
If you're considering investing in your company's 401(k) plan, keep in mind that some plans have a vesting schedule. This is the amount of time you have to be employed before you fully own the money your employer contributes, if any. This encourages employees to stay with the company for a minimum amount of time or longer. However, any money you contribute to the plan is yours from the time you invest it (adjusted to account for gains and losses in your investments).403(b)
Similar to a 401(k), a 403(b) is a defined contribution retirement plan available at some tax-exempt groups, such as hospitals, school systems, churches and nonprofit organizations. Employees who are eligible participate in the same way they would a 401(k), by having a certain amount withheld or deferred from each paycheck.IRA
IRA stands for individual retirement account. Though it may sound complicated if you aren't familiar with it, an IRA is just another type of account. Within that account, you can have a number of different types of investments - stocks, bonds, mutual funds, CDs, even real estate.If you don't have a retirement plan, such as a 401(k), at work, you can deduct traditional IRA contributions from your income (which means you get tax-deferred contributions and will save on your income taxes). Even if you have a 401(k), you can still contribute to a traditional IRA and, depending on your income and amount of contributions to each plan, you may be able to deduct some or all of your IRA contributions. Even if you can't deduct your contributions, you'll still receive the benefit of tax-deferred earnings on any increases in value of your investments.Besides the traditional IRA, you may also be able to fund a Roth IRA. Contributions to a Roth IRA are not tax deductible - you have to pay taxes on the money you put into a Roth IRA each year - but that's it. Roth IRAs grow tax free. Any increase in the value of your investments is yours to keep and withdraw when you're at least 59.5 years old (there are penalties for early withdrawal). This is an incredible savings opportunity. However, there are some limitations. You can't contribute to a Roth IRA if you make more than a certain amount of money (depends on your tax-filing status and modified gross income - for instance, a married couple filing jointly can't make more than $177,000 combined and a single person can't make more than $120,000).Automatic Savings Deduction
If your employer doesn't offer a 401(k) or other automatic savings deduction, an easy way to get started is to have your bank automatically transfer a fixed amount from your checking account to a savings account each month. If you're starting small, this may be a way to get started - and you'll still be able to access your money should you need to, without penalty. Then, you can start up an IRA or other investment account when you feel ready.Regardless of what type of account you use to save for retirement, it's important to save something if you can. Financial experts, including Dave Ramsey, author of Financial Peace University and The Total Money Makeover suggest saving 15 percent of before-tax gross income toward your retirement each year (not including any matching funds you may receive).Don't have the extra money to save? Consider meeting with a financial planner or adviser to determine ways to restructure your monthly budget or to eliminate any debt that might be holding you back. After all, the sooner you start saving, the more flexibility you'll have in choices down the road.