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More than a third of Americans say they’ve never had a retirement account – Here’s how to start one

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When it comes to retirement accounts such as a 401(k) or IRA, more than one-third of American workers — nearly 36 percent — say they’ve never had one, according to a recent survey by Bankrate. With the new year here, it’s a great time to start a retirement account (anyone with earned income can get one) to better set yourself up to succeed in 2022 and beyond.

And if you’ve already opened a retirement account, you’re on the right track. But if your retirement fund isn’t quite where you would like, you’re not alone. Most working Americans — a full 52 percent, according to the Bankrate survey — say they’re behind where they need to be. In fact, not saving enough for retirement is perennially one of Americans’ biggest financial regrets, especially as they get older.

The good news is that it only takes a few minutes to open a new retirement account and get yourself positioned for a better financial future. Here’s how experts say to get started.

5 ways to get your retirement fund started

When it comes to retirement accounts, you have several ways to get started, and some of the easiest take just a few minutes. They don’t take much time to manage and keep track of, either.

1. Open a traditional IRA

“The easiest way to get started with a retirement account is to set up an IRA,” says Dan Sudit, partner at Crewe Advisors in Salt Lake City.

With an IRA, anyone with earned income can get one, and you don’t have to rely on an employer to provide a plan. Then you can go to a popular financial institution such as Charles Schwab or Fidelity Investments — or the best brokers for IRA accounts — and set one up in minutes.

The traditional IRA can allow you to deduct contributions from your taxable income, meaning you won’t pay taxes on them, if your income is below a certain level. Contributions and gains can grow tax-deferred for years before having to pay taxes when you withdraw the money during retirement. Contributions are limited to $6,000 in 2022, though those age 50 or older can add an additional $1,000.

And there are even a few other benefits for those opening an IRA.

“Many people are unaware that for a married couple, even a nonworking spouse may be able to make tax-deductible contributions to a traditional IRA,” says Sudit. It’s called a spousal IRA.

Plus, if your income is low enough, you may even qualify for an additional tax credit called the Saver’s Credit.

2. Open a Roth IRA

A Roth IRA is a different type of IRA that can offer you some attractive benefits as well. With a Roth IRA you make contributions with after-tax money — so no tax deduction this tax year — but you’ll be able to grow your money tax-free and even take it out tax-free at retirement age.

Like the traditional IRA, you’ll need income to participate in a Roth IRA, or you can have a working spouse that qualifies you for one.

The Roth IRA also has income limitations, meaning you won’t be able to open one if your income is above a certain level.

The Roth IRA is a powerful retirement account, and it can offer powerful features such as the ability to pass down your nest egg tax-free to your heirs. That’s all part of the reason that many financial planners think the Roth IRA is the best retirement plan around.

3. Get your 401(k) in order

The new year is also a great time to refocus on your employer-sponsored 401(k) or get started on one if you haven’t already. The 401(k) plan — or its cousin, the 403(b) for government employees — provides a great way to save for retirement, and comes in two varieties: the traditional 401(k) and the Roth 401(k):

  • The traditional 401(k) allows you to save on a pre-tax basis, meaning you won’t pay income taxes on any contributions. You’ll be able to grow your money tax-deferred, and you’ll pay taxes only when you withdraw your money in retirement.
  • The Roth 401(k) lets you save on an after-tax basis, meaning you’ll pay taxes on any contributions. However, you can grow your money tax-free, and you’ll never have to pay tax on qualified withdrawals in retirement.

And unlike an IRA, “there are no income limits for making contributions to a 401(k),” says Jonathan Cahill, CFP, wealth advisor at Girard. But you cannot contribute more than you earn.

The maximum annual contribution to a 401(k) is $20,500 in 2022, and those age 50 and older can add an additional $6,500 per year as a catch-up contribution.

“Other benefits of a 401(k) plan include creditor protection, the ability to borrow against it or take early distributions without penalty for a first-time homebuyer,” Sudit says.

4. Maximize your employer’s 401(k) match

The 401(k) can give you a little extra juice, though, beyond just those contribution limits. That’s because many companies give employees matching funds for contributing to their account. In effect, you get an immediate return on your money. Here’s the fine print.

Employers often match a specific percentage of your contribution up to some maximum. For example, one employer might match the first 4 percent of your contributed salary at a full 100 percent. So if you contribute 4 percent, your employer kicks in another 4 percent and you’ll be putting away a total of 8 percent. Further contributions won’t earn you any extra match, however.

“We would certainly recommend you make contributions to that plan, especially if your company provides a company match,” says Sudit. “That’s free money.”

So it’s often an easy way to quickly boost your savings. However, many employers will require this match to “vest,” meaning you’ll need to stay with the company for a period of time, often three or four years, to claim the full benefit. Otherwise, you’ll likely end up with just a partial benefit, and the company will keep any money that remains unvested.

5. Pick your investments

So you’re taking advantage of the benefits of a retirement account  — but what do you invest in? Sudit advises to focus on potential growth, “focus on long-term goals and what are the best investments over that period of time to get you there.”

One of the best long-term investments has been stocks, with attractive returns. The S&P 500, a collection of about 500 of America’s top companies, has returned about 10 percent annually over long periods. It’s highly diversified, which helps reduce your risk, and you can buy into the S&P 500 with just one low-cost index fund.

But even with the proven track record of solid long-term returns, stocks can be volatile in the short term. Those who are nearer to retirement may want to play it more conservatively, however, and own bonds as well. Bonds are less volatile generally than stocks and deliver regular income.

If your company offers a 401(k) plan, you may have access to an advisor who can help direct you and work with you to better understand how your investments fit into your retirement plan.

“If you don’t want the responsibility in picking out the funds and allocation, target-date funds can be a suitable option for you,” Cahill says.

Target-date funds automatically move your portfolio from riskier investments (such as stocks) to more conservative ones (such as bonds) over time. This process gives you more assurance that your money will be there when you need to access it in retirement.

Bottom line

The start of the year is all about turning over a new leaf, and it’s a great time to get your finances in order. Take advantage of these helpful retirement plans to amass even more dollars — often, tax-free — and make your retirement years that much easier. The more time you give your money to compound, the more you’ll have when that special day comes.

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Written by
James Royal
Senior investing and wealth management reporter
Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.
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