There are several financial topics that deserve extensive coverage. Planning for retirement is one of these. So we'll be taking the next several days and taking about retirement and this article from Kiplinger's that gives us seven ideas for maximizing retirement savings.
To start, Kiplinger's sets the scene:
America is on the verge of a retirement revolution. The oldest of the baby-boomers -- the 76 million Americans born between 1946 and 1964 -- are turning 59½, the magic milestone when they can start tapping their retirement accounts penalty-free. In just three more years, the same advance team will be eligible to take early benefits from social security.
But just because they can pack it in doesn't mean that they should. In case you've missed the great national debate, social security alone can't guarantee you a smooth transition to living without a salary.
The stark reality is that to live comfortably in retirement -- whatever that means to you -- you must have your own resources. And given longer life expectancies, your savings may have to last 20 years or more. If you're years away from your retirement party, start planning now. But even if you're nearly ready to give up your parking space, it's not too late to catch up. To get you going, we offer seven approaches to amassing a big bundle, several of which should be new to you. Now that you know what they are, use them to secure your own future.
Then, they get to tip #1:
Tip #1: Save tax-free
Beginning in January, employers may offer a new retirement-savings account, the Roth 401(k). Like the more-familiar Roth IRA, it provides no up-front tax deduction, so your contributions won't reduce your current taxable income. But all the money you withdraw in retirement -- both contributions and earnings -- is tax-free as long as the funds have been in the account for at least five years and the account owner is at least 59½ years old. That means every dime will be yours to spend at a time when you may need the money most, unhampered by taxes that whittle away at most other retirement savings.
The Roth 401(k) offers two big pluses over the Roth IRA: higher contribution ceilings and no income limits. "The Roth IRA is the holy grail of retirement accounts, but we never started one because our income was right on the edge," says Trip Leonard, 34, a stay-at-home dad and self-described personal-finance geek who hosts his own Internet blog on the subject (visit www.musingmoney.com). "I don't mind paying taxes now if it means tax-free income in retirement."
Workers are barred from contributing to a Roth IRA once their income tops $110,000 for individuals and $160,000 for married couples. But, for the first time, high earners will be able to take advantage of tax-free retirement savings because the Roth 401(k) has no income limits -- although anti-discrimination rules that sometimes limit contributions to 401(k) accounts by highly compensated employees (those who earn $95,000 a year or more) will apply.
It will be interesting to see where the 401k split between Roth 401ks and standard 401ks will finally settle out. I'm guessing that a lot of it will depend on employers' willingness to change/add to their current plan.
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Posted by: Daniel | January 08, 2008 at 03:53 PM