Best Retirement Savings Plans to Consider

There are a variety of retirement savings and investment plans available today.

If you work for a company that offers a 401(k) retirement plan then you should consider it strongly as your first choice for retirement savings. A company 401(k) plan has several advantages over other kinds of retirement savings.  First, the contribution amount is deducted straight from your paycheck, meaning once the plan is started you need take no more action to save the money. Second, the contribution is made pre-tax, which means that the amount of the contribution is not counted as income, reducing your tax burden. Third, you pay no taxes on the plans earnings until they are withdrawn. Lastly, many employers will match a certain amount of the contributions. For example, if you contribute five percent of your pay, then your employer may match that contribution. This is essential a five percent pay increase to you and also doubles your retirement saving amount.

The other types of retirement saving accounts you should consider are Individual Retirement Accounts, or IRAs. There are two kinds of IRAs:  the traditional or regular IRA and the Roth IRA, named after Senator William Roth who proposed the idea.

With traditional IRAs contributions are made pre-tax, which lowers your tax liability in the year you make the contribution, but taxes must be paid on the earnings at the time of withdrawal.  Also there are income limits and other restriction on being able to have a traditional IRA. For example you may not deduct the contribution amount if you have an employer sponsored retirement plan, or 401 (k) and/or have an adjusted gross income over a certain amount: $56,000 to $66,000 for single filers and $89,000 to $109,000 for joint filers in 2010.  Also there are contribution limits with a regular IRA, in 2010 you could contribute a maximum $5000 dollars and an additional $1000 “catch up” money, if you are over 50 years old.

A Roth IRA is very similar to the regular IRA.  The contribution limits are the same ($5000 for those under 50, $6000 for those over 50).  However, any contribution to a Roth IRA is not pre-tax and so is taxed at the current rate. The advantage of the Roth IRA over a traditional IRA is that earnings are tax free at the time of withdrawal.  Also, the income limits to contribute to a Roth are higher than they are to contribute to a regular IRA.  Single filers may earn up to $105,000 to qualify for the full contribution; and up to $167,000 for joint filers to qualify for the full contribution.

Please remember it is never too late or too early to start saving for retirement and the three plans above are very good vehicles for saving for retirement.


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