One of the keys to saving for the long run is keeping as much money as possible shielded from taxes. A 401(k) gives you that and more: You also get an immediate tax break, because contributions come out of your paycheck before taxes are withheld. And there's the possibility of a matching contribution from your employer – that's free money.
The federal limit on annual contributions has been increasing gradually, and is $15,000 in 2006. If you're 50 or older, you may contribute an additional $5,000.
With a Roth IRA, you get no immediate tax break, but withdrawals in retirement will be tax-free. You can make at least a partial contribution to a Roth if your modified adjusted gross income is less than $110,000, if you're single, or less than $160,000, if you're married and filing jointly.
6. All else being equal, the best place to invest is a 401(k). Once you've earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA.
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You don't have to spend a lot of time to put your financial house in order. Money Magazine shows you the easy way. (more) |
