retirement

Act now to dodge ramen-noodle retirement

Admit it. Most of what you knew about saving money when you were a kid and young adult you learned from your parents. "Investing 101" is not offered at many high schools (though it should be), and even most college business classes focus on economic theory, not the practice of saving your money and making it grow.

So if your childhood was anything like mine, it was up to your parents, grandparents and maybe some random aunt or uncle to impart their financial knowledge and advice onto you.

Nonexistent advice?

In my case, that advice was almost nonexistent. My parents did not make a practice of saving money, so I didn't, either. I wasn't worried about it; I was young and on my way to a successful career as a financial planner. As long as I was earning good money, saving some of it for later did not seem that important.

But that is where I was wrong, and I'm glad to say that I figured it out early. You see, when it comes to making your money grow, the sooner you get started investing, the more you will likely have later on at retirement -- when you really need it. I saw how my parents struggled later in life because they hadn't saved when they were younger, and it made me want to take my financial future more seriously.

If you have not had that wake-up call yet, consider this your alarm. There is no guarantee that Social Security is going to be around by the time most of us hit retirement age. Advances in health care are enabling people to live longer. If you do not want to be working when you are 90, you need to start growing a retirement account now.

'There is a better IRA for your needs'

You have plenty of choices to kick off your journey of investing and saving. It is probably best to steer clear of a traditional IRA. There is a better IRA for your needs -- the Roth IRA -- which makes it easy for even brand-new earners to put money away for the future.

You see, the great thing about a Roth IRA is that the money you put in every year grows completely tax-free.

You can be as conservative or aggressive with your investment as you want, which gives you a lot of control over how your fund grows. Sure, you can't take a deduction on your tax return like you can with a traditional IRA, but chances are that you do not need that deduction now as much as you will need a big, fat retirement fund later on.

Converting your IRA

When the time comes to retire, every penny of the money in your Roth IRA is yours -- you do not have to pay even a dollar in taxes on it. You'd have to share a traditional IRA with Uncle Sam.

Another reason it is smart to start funding a Roth IRA now is that you may eventually make too much money to continue to be eligible for one. When you surpass Roth IRA income limits, you can add money to a traditional IRA and take the deduction every year. But the money in your Roth account will stay there, still tax-free, waiting for you to take it when you need it.

If you have a traditional IRA and think it's not for you because of the tax treatment, don't worry. You're in luck. You still have the option to do a Roth IRA conversion and get all your IRA pretax dollars switched over to be tax-free in your golden years. Be sure to double-check the Roth IRA conversion rules as they can be tricky. But executed correctly, a conversion can keep your tax-free retirement party going strong.

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