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[The following is a guest post by Jeff Rose about finding the right retirement plan for you – see his complete bio below]

Do you have aspirations of an early retirement? If so, it is important to investigate all of your options and even more important to start saving for retirement now.

The Typical Retirement Plan Options:

Employer-Sponsored 401(k) Plan

A 401(k) is a savings plan created by employers. Eligible employees can make contributions directly from their paycheck without being taxed. Subsequent earnings are tax-deferred. Early withdrawals are subject to penalties. If a 401(k) Plan is offered to you through your place of employment, take advantage of it.

[Take a look at the current 401k contribution limits]

Many companies offer a matching program. This means that whatever you contribute is matched by your employer, usually up to 5 or 6% of your income. In order to receive these additional funds, you need to participate at a certain level in your 401(k) plan, but as long as you can do that, why wouldn’t you? Free money is hard to come by.

Individual Retirement Account (IRA)

Another popular plan with definite tax advantages is the Individual Retirement Account. With a traditional IRA, you save tax-deferred money that gets invested in a variety of ways. If you already have a 401(k) through an employer, you can save even more for retirement with an IRA. Savings in an IRA is typically invested in the following ways.

Stocks and Mutual Funds – By far the most popular choices, these are arguably the best way to increase your savings. Some people are adverse to risk and, therefore, afraid of this option, but stocks and mutual funds generally beat inflation and allow your money to compound via dividends and increases in share prices.
Bonds – Putting your money into bonds is a good choice for the more cautious of investors. You will still end up with more than with money markets and CDs. Dividends can be spent or reinvested..
CDs and Money Markets – These options are your safest option, but give the lowest amount of interest.

[Here are the current IRA contribution limits]

Roth Individual Retirement Account

A Roth IRA is another type of retirement plan where your earnings grow tax-free, similar to that of a self invested personal pension in the UK. The difference is, you have to pay taxes up front and, in order to let your money accrue tax-free, hold the account for a five year minimum. There are fewer investment restrictions and withdrawals are tax-free, though certain rules may apply.

Changes occurring within your Roth IRA (interest, dividends, capital gains) are not taxable. Contributions are not tax deductible, but once deposited into your account, your money will grow free of taxes.

403(b) Plan

This type of retirement plan is solely for the employees of certain public schools and other organizations that are tax-exempt. Some ministers fall into this category. You, the employee, can not set up a 403(b) account for yourself. Only your employer can set one up for you. Contributions are made by your employer through salary reduction agreements. Some plans allow you to make after-tax contributions.

These are funds put into your plan from some other source of income. No income tax is paid on these contributions until you start withdrawing from your plan, normally not until you are retired. (Contributions made to a Roth program are initially taxed but then remain tax-free until you start withdrawing and, if certain requirements are met, sometimes even then.)

If you are ready to start saving for retirement, take a minute to educate yourself. You’ll be glad you did.

photo by jscreationzs

Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance. He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger. You can follow his updates on Twitter.

Below you will find the IRA Contribution Limits for 2017, 2016, and 2015. Unfortunately, there were no adjustments made to the 2016 contribution limits of IRAs – both Roth and Traditional. Therefore, Roth IRA contribution limits and Traditional IRA contribution limits will remain the same as this year.

Combined Traditional and Roth IRA Contribution Limits:

	2017	2016	2015
Traditional IRA Contribution Limit	$5,500	$5,500	$5,500
Roth IRA Contribution Limit	$5,500	$5,500	$5,500

IRA Catch-Up Contribution	$1,000	$1,000	$1,000

Total IRA Contribution Limit for Those Over 50	$6,500	$6,500	$6,500

For those of you who will be under 50 years of age at the end of the year, the total of your Roth IRA Contribution Limit and your Traditional IRA Contribution Limit is $5,500. However, if your total taxable compensation for the year is less than $5,500, then your IRA contribution limit is equal to the amount of your taxable compensation for 2017.

The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.

As with the 401k, if you are 50 years of age or older before the end of 2017, then you will be allowed to make a “catch-up” contribution in the amount of $1,000. This will bring your IRA contribution limit to the lesser of $6,500 or the total of your taxable compensation for 2017. This limit can be split between a Traditional IRA and a Roth IRA but the combined limit is $6,500.

For those of you who would rather contribute to an IRA over a 401k because of the added flexibility, please keep in mind that you should still contribute an amount to your 401k that will allow you to take advantage of the full 401k employer match. If not, then you are essentially throwing away free money!

Be sure to refer to these charts from the IRS (linked above) for those who are covered and those who are not covered by a retirement plan at work. Also, see how your Modified AGI affects the amount of Roth IRA Contributions that you can make for 2017.

photo by o5com