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Many Americans have an overall estimate about how much money they need to save for retirement. But even after calculation most of them fall short of it . As with rising inflation almost quarter of Americans have not a penny save for retirement. The issue is critical as  they  have to suffer the long-term consequences of it . Apart from this majority of the non-retired adults are super conscious for meeting a certain goal for retirement saving.

There are multiple ways to save for retirement that includes the best accounts like IRAs and 401(k) and IRAs for extra perks to save for retirement. These are the viable approaches as they provide you tax break on savings when you withdraw the fund. This way the investments ae fully shielded from the International revenue Services and grow at a faster pace without getting taxed. So whenever this question pops up in your mind “ How to save for retirement” the viable way is to take full fledge advantage of the retirement saving account.

How to save for retirement – Key takeaways

  •  If you are lucky enough and your company sponsors a retirement plan like 401k , try to save for retirement this way. Even the smallest portion of the money you save in the account is beneficial to you in the longer run . If your workplace that does not offer a plan with matching contributions or unable to provide you the retirement plan , then jump towards the next step
  •  Try to make a contribution to IRA. We will help you analyze in detail which type of individual retirement account among Roth and traditional retirement accounts will work perfectly for you. As per the previous year’s record, the IRA contribution limit is $6,500 while for  2024 , the limit is $7,000. In case you are self-employed, there are various retirement saving account for you to give a consideration.
  •  If individual retirement account does work well for you then you need to turn back to the other employer plan and try to make contributions there to save for retirement

How to save for retirement – Essential Guide

If you are determined for retirement saving , you can try out these viable retirement saving approaches.

401(k) plans

401(k) plans

 The 401(k) plan is a retirement savings account that is offered to various American employers and have the tax benefit for the saver. The employer who wants to save for retirement should agree for the terms and conditions for this investment account . This way a certain portion of your pay check goes directly to the investment account . There are plenty of investment options to choose from and the viable approach is the mutual funds.

The main advantage of this account is that it is a company sponsored savings account in which employers can easily contribute their income to a specific account. For users to leverage the retirement savings account choose between the two basic options that include traditional and Roth and they differ only in a way that how they are taxed. With the traditional 401(k) plans, the income you contributed is pre-taxed while the withdrawals are taxed. On the other hand, Roth 401(k) the amount you withdraw is tax free. As per your preference, you can easily make a choice between traditional and Roth 401(k) plans for the retirement savings.

Retirement investment accounts

Retirement Investment Acount

 For you to make a smart and confident decision , weigh down the pros and cons of the 401(k) , Roth IRA , Traditional IRA. You can check the eligibility  , contribution limit , investment ability , tax treatment of the following account is the form of the table summary to save for retirement.

Feature401(k)Traditional IRARoth IRA
EligibilityEmployed by a company that offers a 401(k) planMust have earned incomeMust have earned income
Contribution limit$20,500 ($27,000 if 50 or older)$6,000 ($7,000 if 50 or older)$6,000 ($7,000 if 50 or older)
Investment abilityPre-tax or Roth contributionsPre-tax contributionsRoth contributions
Required minimum distributionsAge 72Age 72No RMDs
Tax treatmentContributions are tax-deductible, but withdrawals in retirement are taxed as ordinary income.Contributions are tax-deductible, but withdrawals in retirement are tax-free.Contributions are not tax-deductible but withdrawals are completely tax-free.

If you are self-employed and works as a freelancer or own a business , try to consider the self-employed retirement plans. Consider the following 3 options to save fir retirement.

  •  Solo 401(k) plans – This one is specially geared for all the individuals who are self-employed. In the resent year 2023, you can contribute a maximum of $66,000 along with $7,500 catch up contribution. But in the coming year 2024 you can make a contribution of $69,000 with the same catchup contribution as in previous year which is $75,00.
  • SEP IRA – For all business owners and the self-employed people you can make a contribution of up to $69,000 in the year 2024 or up to 25% compensation or net self-employment earnings  with a compensation limit of $345,000. It is important to note that the contributions are tax-deductible.
  •  SIMPLE IRA– This one is specifically for all the large scale business owners with a workforce greater then 100 employees .  In the present year you can contribute up to $15,500 but in 2024 it is $16,000. Moreover, it is crucial to mention here that the contributions are deductible.

Roth IRA vs traditional IRA

Roth IRA vs traditional IRA

 As both Roth IRA and traditional IRA are good to save for retirement. But before you choose consider the integral differences between the retirement saving accounts. When determining which kind of account makes the best sense to you evaluate carefully.

Traditional IRA

 This type of IRA will let you make pre-tax collections. The money you contribute to save for the retirement is deductible from your taxes for the year. For the year 2023, the maximum contribution limit is $6,500 and for people above the age of 50 , it is $75,00. Furthermore , you are eligible to pay income taxes on the money you draw from the retirement savings account.

Best for

Traditional IRA is best suited for all those individuals that are in the lower tax bracket and want to withdraw the money .

Roth IRA

 This type of retirement saving account will let you make after-tax contributions. The contributions are not deductible and the withdrawals in the retirement account are not taxed at all. The maximum contribution for the year 2023 is $65,00 and $7,500 for the people above the age bracket of 50.

Best for

 For all those individuals who expect to be in the higher tax bracket when he starts taking the withdrawals.

Set up regular cadence of deposit

Set up regular cadence of deposit

 If you have made a choice  for the type of retirement saving account then its the time for you to set a regular payment directed towards the account. Although the question how much to save for retirement creates a lot of ambiguity . There are plethora of variables to consider  when you make calculations to save for retirement.

 As per the Retirement research at Boston College,  you should start saving 15% of the total income at the age of 25 , if the ideal retirement age in your mind is 62. If 15%  sums up a huge amount of money than try to save at least 10% now. Also, starting to save for retirement later in life means that you have to save higher percentage of expenses in a shorter period.

Retirement Planning – 5 Steps to Plan for Retirement in 2024

 If you are fully determined to save for retirement, then retirement planning is crucial . To plan for the retirement you first need to asses the financial situation and then have to plan accordingly. As each person has a unique financial situation so it is important to comprehend each case differently .

Increase overall retirement saving rate

Increase overall retirement saving rate

If you will not be able to save 15% of the income in the retirement saving account than its completely normal. The expert financial advisors usually recommend to increase 1% every year until you reach a percentage of 15%. There are multiple way to increasing the amount you save for retirement but the viable approaches are the following :

  • Automatically save portion of raises and bonuses– If you feel incremented salary with some additional bonus, try to deposit the increased amount direct to the retirement fund.
  • Once you pay off debt , direct the payment to retirement saving account – As you pay off for the car loan , mortgages and student loan fully , then try to save for retirement by redirecting the remaining saving to the retirement fund
  •  Try to avoid lifestyle inflation – Lifestyle inflation usually refers to the process of spending more money when you have more to spend. Instead of upgrading to a new car, big home try to put money aside as retirement savings.

 Frequently Asked Questions

 What is the best way to save for retirement?

 There are many approaches but the best among all is the 401(K) plans. As this is the most credible option it lets you save bonuses awarded from your employer to quickly save more money.

 In what way should I save for retirement?

1. Firstly, give priority to emergency savings
2. Get the triple tax saving with HSA
3. Try to create 401(K) or IRA
4. Save the remaining money in the taxable brokerage account


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