Brokerage firms offer a variety of tools to help you do that, and you can read more about the process here. If that’s the case, you’ll generally do something called “rolling the money over” into an I.R.A. When you leave an employer, you may choose to move your money out of your old 401(k) or 403(b) and combine it with other savings from other previous jobs. You can read about the various limits via the links above. They came with their own set of rules that may allow you to save more than you could with a normal I.R.A. (which is short for Simplified Employee Pension), and there is also a Solo 401(k) option for the self-employed. You can find those limits here.Īnother variation on the I.R.A is a S.E.P. The federal government has strict income limits on these kinds of everyday contributions to a Roth. Roth I.R.A.s are an especially good deal for younger people with lower incomes, who don’t pay a lot of income taxes now. But once you do that, you never pay taxes again as long as you follow the normal withdrawal rules. With the Roth, you pay taxes on the money before you deposit it, so there’s no tax deduction involved upfront. As with 401(k)’s, you’ll pay taxes on the money once you withdraw it in retirement. After you hit the tax-deductible limit, you may be able to put money into an I.R.A.
Again, check the up-to-date government information on income and deposit limits and ask the firm where you’ve opened the I.R.A. Depending on your income, you may be able to get a tax deduction for your contributions to a basic I.R.A. Taxes: Perhaps the biggest difference between I.R.A.s has to do with taxes. The federal government will adjust the limits every year or two. each year, and the annual cap may depend on your income and other circumstances. In general, what you invest in tends to have far more impact on your long-term earnings than where you store the money, since most of these firms have pretty competitive account fees nowadays.Ĭaps: As with 401(k)’s, there may be limits to the amount you can deposit in an I.R.A. How high are the fees to buy and sell your investments? Are there monthly account maintenance fees if your balance is too low? People who are setting up their own retirement accounts will usually be dealing with I.R.A.s, available at financial-services firms like big banks and brokerages.Ĭhoosing where to start an I.R.A.: Ask the financial institution for a complete table of fees to see how they compare. Taxes: As with most other employer-based plans, when you save in a 401(k) you don’t pay income taxes on the money you set aside, though you’ll have to pay taxes when you eventually take out the money.Īvailable accounts: I.R.A., Roth I.R.A., S.E.P. It’s like getting an instant raise, one that will pay you even more over time thanks to the compound interest we were talking about before.Ĭaps: How much can you put aside in a 401(k)? The federal government makes the call on this, and it often goes up a bit each year.
Whatever the offer is, do whatever you can to get all of that free money. Or it may put in 50 cents for every dollar you save, up to 6 percent of your salary. It may match everything you save, up to 3 percent of your salary. Matching: If you’re really lucky, your employer will match some of your savings.
Some employers will automatically raise your savings rate each year, if you let them. All you have to do is fill out a form saying what percentage of your paycheck you want to save, and your employer will deposit that amount with a company (like Fidelity or Vanguard) that will hold it for you. (Many smaller employers do not.) You can generally sign up for this any time (not just during your first week on the job or during specific periods each year). If your for-profit employer offers any workplace retirement savings plan, it’s probably a 401(k).