Ever raced against a friend when you were younger or even in gym class… just waiting for someone to say “Go!” so you can take off? Well here it is…“Go!”
Except instead of running, you simply need to start saving for retirement.
If you’re wondering just how you’re supposed to get started, then you’re in luck because this race comes with a sort of guide to help you. Here’s how you can snag the lead:
- Look into pre-tax retirement savings accounts with your employer (see Put Your Employer’s Retirement Plan to Work). Your employer’s 457 or 401 plan could give you a leg up on your savings. You’ll reduce your taxable income and taxes will be deferred on your contributions until you withdraw assets. The goal is to wait until retirement to withdraw assets, when taxes tend to be lower. And if you maximize your contributions, it could mean a much lower taxable salary, i.e., less of your salary goes to Uncle Sam.
- Check out whether it makes sense to have an IRA to supplement your retirement savings. The IRS allows you to contribute $5,000 annually to a Traditional or Roth IRA (you’re allowed to contribute an additional $1,000 if you’re 50 or older). And as of January 2010, Traditional IRAs and certain employer retirement plans can be converted to a Roth IRA regardless of your salary (prior to Jan. 2010, there was a cap on the salary requirement for this type of conversion). If you convert during 2010, you will be able to spread the potential tax burden for a conversion into equal installments over tax years 2011 and 2012.
- Is a pension available to you? Many public employees have access to a pension via their employer. This option is slowly fading away and is sometimes unavailable. Touch bases with your HR department to confirm if a pension plan is available, how it works and how it can benefit you.
If available to you, any or all of these options can help you toward the finish line. To win the race, you will have to stay the course. Remember to pace yourself, stay focused, and learn more about your retirement planning options along the way.
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