IRAs in your 40s, 50s, 60s, and 70s |
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IRAs in your 40s
In your 40s, you may find saving money for your retirement competing with other demands, such as buying a home, raising children, and saving for their college education. For you, saving money may mean brown-bagging your lunch to work. But don't sacrifice your financial future to today's demands. Take advantage of your long investment horizon and focus on mutual funds or individual stocks with growth potential. You can probably afford a little risk.
Among your retirement savings options, your best choice is a company-based retirement savings plan such as a 401(k), if your employer matches some or all of your contributions. It's also an easier form of savings. Because the money you contribute comes out of your pre-tax paycheck, you'll never miss it. Be sure to take full advantage of any employer contributions. In other words, if your employer matches up to a given limit such as $5,000 annually or a percentage of your gross salary, contribute at least that much. It's like getting free money!
If you can still afford to put money away for retirement, consider opening a new Roth IRA (assuming you meet the income limits of $95,000 per year in adjusted gross income for an individual or $150,000 for married couples filing jointly). The money invested isn't tax deductible, but its growth is tax-free. And it may come in handy when your children start their college careers. That's one expense for which there's no penalty for early withdrawal from either a Roth or traditional IRA. But with a traditional IRA, you will still have to pay income taxes on the money. (See Early Withdrawals in our IRA Guidelines.)
If you still have money to invest, go back to your employer-sponsored retirement plan, and contribute up to the maximum amount.
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