It’s never too late -or too early- to start saving for retirement. If you are just starting to save for retirement, focus on saving as much as you can now. Your biggest asset is time!
But, where to start? What type of retirement accounts should you have?
It can get confusing fast with all the different options, advice and opinions in terms of just where to begin. But, your overall goal is to start saving for retirement asap and work up to maxing out all avaiable retirement accounts.
Because this is how you are going to achieve financial independence.
So, here’s my 7 simple step-by-step instructions on where to start and how to make the most of the different retirement accounts available, so that you can have a diverse portfolio to meet all your needs in the future.
Start with funding a 401(k) or 403(b) plan (through your employer) up the full employer match (if any). I love Roth 401(k), but not every employer offers them. Always take 100% advantage of any match offered: This is free money!
Then your next step is to open up a Roth IRA (you will have to check the income limits to make sure you qualify). Max this out every year! The limit is $5,500/year if you under 50 years of age! If you are over 50, you can contribute up to $6,500/year. I love Roth IRAs for many reasons, but the best one is you are contributing money you have already paid taxes on, so your money and returns grow tax-free! You can read about the other great benefits of a Roth ( and the difference between 2 IRAs) here.
As your income tax rate rises, you can switch to a traditional IRA (rather than the Roth) and then continue to max it out every single year. The limit is the same as a Roth IRA: $5,500/year. (Note: This is a tax-defferred account.)
Remember to keep your Roth IRA open and let it grow.
Remember to roll-over any old retirement accounts (usually from past employers) to your traditional (or Roth) IRA account.
Now once you are maxing out your IRA, go back to your 401(k) or 403(b) plan and keep increasing your contributions (beyond the match) until you are maxing it out every year. You can contribute up to $18,000/year to your 401(k) if you are under 50. The limit goes up to $24,000 if you are over 50. This might take some time to accomplish, but it is possible, and in your best interest to max out all your retirement accounts in order to retire when you want!
After you have done all this, start funding a taxable investment account with any money leftover.
It’s never too late to start saving for tomorrow TODAY!
Now looking for a place to open an account? I love Betterment!!