Saving For Retirement In Your 20s

Savings, investing, and retirement are very related, yet the topic of retirement planning gets pushed off to the side. We fear dealing with the unknown, or we are neglectful.

Instead, planning early and often for retirement will empower you to control for a stage of life that could quite exciting if done right. It is always an excellent time to start thinking about saving some tax dollars long term.

Retirement Accounts are Really Investment, Not Savings Accounts

By saving early in your retirement, you are investing for the long term. Through the benefit and magic of compounding, you can have substantial funds by contributions, even if you begin with a relatively small amount in your 20s.

There are different retirement accounts, but they have a few things in common: they have tax advantages with varying growth scenarios depending on your preference.

Have Tax Advantages

The best known of all retirement plans is the traditional 401K. They have primarily replaced the defined pension benefit plans. Most, but not all, employers provide the 401K plans for recruitment and retention purposes.

If you consider employment between two companies, examine the competing offers based on their sponsored plans for employer matching of your contribution.

Varying 401K  Plans

Typically, a company will match 50% of every dollar you annually up to a percentage of your gross income, usually around 6%. Some companies match on a dollar to dollar basis but at a low rate of your salary.

Using pre-tax dollars, defer your federal and state taxes paid upon withdrawal, beginning age 59.5 years. Withdraws before that time will usually result in a 10% penalty.

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