Retirement And 401(k)s: What Everyone Should Know
A 401(k) is a great tool to stash cash for retirement. Make the most from your money with these tips. go >
By Gregory Karp
Your retirement nest egg -- more likely laid by a hummingbird than an ostrich?
If you want to jump-start your retirement savings, here are a few tips:
Make it automatic. Saving for retirement is often one of those good intentions that goes unfulfilled. Sign up for an employer retirement savings plan so the money comes right out of your paycheck. Or set up a retirement account on your own, and fund it with automatic monthly withdrawals from your bank account.
Save the raise. Put part of every annual pay increase toward retirement savings. For example, if you get a 4 percent raise, boost your retirement contributions from 10 percent to 12 percent of your income. You won't miss it.
Take free money. If your employer matches contributions, contribute at least enough to your employer plan to get the match. It's free money.
Pay taxes now. Roth Individual Retirement Accounts (IRAs) and the new Roth 401(k) plans are ideal savings vehicles. You contribute take-home pay to the account. In retirement, you withdraw the money -- and the growth on the money -- tax-free.
If you don't qualify for a Roth because you make too much money and don't have a Roth 401(k) at work, consider saving retirement money in a regular investment account. You put in after-tax money, taxed at today's relatively low income tax rates. Then at retirement, you withdraw money and pay only capital-gains taxes, today 15 percent, on the growth, as opposed to regular income taxes, which could reach 30 percent or more.
"People should try to diversify across tax-deferred and taxable accounts," says Christopher Jones, a fee-only financial planner in Palmer Township, Pa., who will soon open a Keystone Financial Planning office in Macungie, Pa.
