Q

What's the best way to save for retirement?

A

There are a variety of great IRS-backed retirement savings plans: 401k, IRA, Roth IRA, and SEP IRA.

We’ve got some bad news. Someday, if you’re lucky, you’re going to be old. The good news is, by then, you probably won’t have to work, so even though your knees may hurt a little, you’ll be able to see movies cheaper and sleep in every day of the week! However this life will be yours only if you have enough saved for your retirement. And the only way you’re going to have enough saved up for your retirement is if you start saving for your retirement early, which means you really have to start now, and it doesn’t matter if you’re 20, 30, or even 50. It’s truly never too late to start.

So how are you going to save for your retirement? The IRS provides an array of tax breaks to encourage us to save. There’s the trusty old 401K, the employer administered retirement savings plan. These are especially great, since not only will your savings be tax-deferred — meaning you pay no income tax on any money you invest in it until you retire — but your employer may also kick in some money to match some, or even all, of your contribution. Other tax deferred plans that you may decide to open are the IRA, short for individual retirement account, open to all Americans, and the SEP, which is a lot like a 401K, but for the self-employed gig economy types. Then there’s the Roth IRA, which is not tax-deferred, in that Uncle Sam will consider any money you contribute to be taxable. But unlike tax deferred accounts, when you withdraw your money at retirement, you’ll pay no income tax on it.

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