How to save for retirement

There are many retirement accounts available to most of us, so don’t just settle for one without learning about others.

IRA accounts can be opened at many financial companies and brokerages, and they come in two main varieties: the traditional IRA and the Roth IRA. You can contribute up to $6,000, total, to one or more IRAS for 2020, plus an extra $1,000 if you’re 50 or older. (These limits often change from year to year, but are remaining the same in 2021.) The IRA contribution deadline for 2020 is April 15, 2021.

Traditional IRAS offer an upfront tax break, shrinking your taxable income by the amount of your contribution. In retirement, withdrawals are taxed at your income tax rate. Roth IRA contributions offer no upfront tax break, but if you follow the rules, withdrawals in retirement will be taxfree. That can be a big deal if you’ve amassed a large sum over many years.

There’s a good chance your employer offers a 401(k) plan. There are traditional and Roth versions of 401(k) accounts, too. The contribution limit for 401(k)s in 2020 (and 2021) is $19,500, plus another $6,500 for those 50 and older.

IRAS generally give you a lot of freedom in allocating your money: You can invest in any of thousands of stocks, mutual funds and other securities. A 401(k) account is typically more restrictive, offering a set menu of certain funds and other investments. But unlike IRAS, 401(k) plans frequently offer matching contributions from your employer. That’s free money, so it’s smart to contribute at least enough to max out any available match.

You needn’t use only one of all these options. You might have a 401(k) account through your job, and a Roth IRA as well. Depending on how good your 401(k) is, you might focus much of your saving and investing there, or you might just contribute enough to max out the match and then save in IRAS until you max those out.