retirement
3 tips for early retirement investing
It's never too early to create a retirement plan, but before you dive in, make sure the water is clear. Retirement investing takes careful planning to get the results you want. With a few simple tips you can start to make the most out of your plan.
Budget
Every solid retirement plan starts with a concrete budget. Budgeting allows you to determine the amount of money you can contribute and save inside and outside of your retirement plan. Budget calculators are a useful way to determine your expendable monthly income and the amount you have available for savings. The amount you contribute to your 401(k) plan is largely dependent on your available savings.The percentage you contribute to your 401(k) can loosely be determined by age. According to Linda Gadkowski of Beacon Financial Planning, if you're in your 20s you should contribute 10 percent of your income. If you're in your 30s, 15 percent of your income should be going toward retirement, and if you're in your 40s around 20 percent. However, if possible, you should always contribute the maximum amount allowed by the IRS.
Get a full match
Get a full match to make sure you're contributing as much to your 401(k) as you can. Employer 401(k) plans commonly contribute 50 cents of every dollar you contribute, up to 6 percent of your income. To get a full match, you should contribute at least the percentage that your employer is contributing. For example, if you make $50,000 a year and your employer is contributing 50 cents of every dollar at 6 percent of your income, they will contribute $1,500. You will contribute the full 6 percent of your income, which is $3,000. However, contributing more than the match is always a good idea for extra savings and tax breaks. See how much money you'll save in your 401k plan with Bankrate's 401(k) savings calculator.Max out your 401(k)
Max out your 401(k) to reduce your income taxes and save more money. The IRS determines the maximum amount of money you can contribute to your 401(k) on an annual basis. For 2010, the maximum is $16,500. Contributing the maximum amount of money to your 401(k) reduces federal income taxes and most state taxes. If you make $50,000 a year and contribute the $16,500 maximum, you'll only be taxed on federal income for $33,500. State income taxes vary. After age 50, you are allowed a catch-up contribution of an additional $5,000 per year.
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