It is often said that you can start saving for your retirement at any time. But the fact is when you get older, you are more likely to face all kinds of limits to your saving options.
Fortunately, you may still have enough time to get prepared. Even if you start saving at 30 or so, you may still have over 30 years to accumulate money. If you start investing in some tax-sheltered retirement vehicles, you may have a chance to obtain benefits.
The most common and popular tax-deferred vehicles for retirement are 401(k)s and the traditional individual retirement accounts (IRA). Both of the two vehicles enable investors to deduct their contributions every year. Besides, these options enable investors to postpone tax payments to the years when they get retired. This makes their tax payments much lower.
Full-time employees would find 401(k)s a very good choice. Employees’ contributions will be matched by employers for an added compensation benefit. With 401(k)s, investors’ funds can be deducted pre-tax.
This year, the maximum deferral investing for 401(k)s is $19,500. People aged 50 or above can have another $6,500 added. If you take the money out of a 401(k) account in advance, you will be charged a penalty of 10%. If you are 72 or over, you will be asked to take the required minimum distributions.
The traditional IRA is as good as 401(k)s. Unlike 401(k)s, investors have to invest by themselves. This year, individual investors with the IRA have a contribution limit of $6,000 plus a catch-up contribution of $1,000. If you withdraw money from the IRA before the age of 59, you will be charged a 10% penalty.
Apart from the two vehicles, there are also other alternative options for you to choose, such as Roth IRAs, municipal bonds, annuities, real estate, and so on. You may learn about the details of each option and pick the one that suits you best.