Beef Up Your Retirement Savings

Because Your 401(k) May Not Be Enough

There’s no doubt, Americans have a love affair with their 401(k) plans.

But with their portfolios battered by the financial meltdown and the specter of rising health care costs looming, many future retirees are realizing that a 401(k) alone may not be enough.

In fact, financial experts say tomorrow’s retirees will need 80 to 100 percent of their pre-retirement income just to live comfortably!

With that in mind, more and more investors are supplementing their retirement savings with an old friend — the Individual Retirement Account (IRA).

The good news is that you can contribute to an IRA even if you’re in a retirement plan at work!

Benefits Any Way You Slice It

There are two primary types of IRAs to choose from:

Traditional IRA: The original, or “traditional” IRA, allows retirement contributions to grow tax-deferred until withdrawn (potentially speeding their growth). Currently, you can contribute up to $5,000 a year, or up to $6,000 a year if you’re 50 or older. Eligible taxpayers can also take a tax deduction on their IRA contributions (eligibility phases out above certain adjusted gross income limits, and being in a retirement plan at work tightens these limits).

Roth IRA: By contrast, the newer Roth IRA offers tax-free growth. Taxes are paid up front — contributions are made with already-taxed dollars, so there is no deduction for contributions. That means contributions (but not earnings) can be withdrawn tax-free, without penalty at any age. That’s why many people use Roth IRAs for both college and retirement saving. Eligibility for contributing to a Roth IRA phases out above certain adjusted gross income limits.

The good news is that Uncle Sam is making it easier to convert an existing traditional IRA to a Roth IRA. In 2010, income limits that have traditionally kept high-earning individuals from converting to a Roth will be repealed — making it easier for anyone to make the switch!

The Bottom Line

If you’ve contributed the maximum to your 401(k) and still have money left over for retirement savings, an IRA may be a great place to put it.

For information about AAA’s Deposit Program, including traditional and Roth IRA CDs, schedule a no-obligation consultation or call toll-free 1-888-870-9385.