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Your retirement investment options

When it comes to saving for retirement, you have options. But saving your money in a plan designed specifically for the purpose of retirement comes with a few perks, such as tax breaks. For example, your money isn’t taxed while it grows, and you benefit from paying lower income tax during your working years.

A good starting point is an employer-sponsored retirement plan, such as a 401(k) — if you have one—where your employer matches any money you contribute. Any investment gains you make are tax-deferred until you withdraw funds from the account in retirement.

Another option is an individual retirement account (IRA). With a traditional IRA, you get an upfront tax break and pay income tax when you withdraw funds. With a Roth IRA, it’s the opposite: you don’t get an upfront tax break, but withdrawals are tax-free.

This year, there’s more room to contribute, so — like 37% of American workers — you can save even more. The contribution limit for employees who participate in 401(k), 403(b) and most 457 plans has increased to $23,000, up from $22,500, while the limit on annual contributions to an IRA has increased to $7,000, up from $6,500.

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How to boost your contributions

Many financial planners recommend saving 10% to 15% of your pre-tax income annually to reach your retirement goals. How much you put aside will depend on a number of factors, such as when you plan to retire and what lifestyle you plan to lead in retirement.

Even if it feels impossible to squeeze more money out of your paycheck, there are relatively painless ways to increase your contributions. Even boosting your contributions by one percent can make a big difference 20 or 30 years from now. You could also increase your contribution if you get a raise, or commit to investing your tax refund into a retirement plan.

If you’re 50+, you can also take advantage of catch-up contributions for employer-sponsored retirement plans. This could be an option if you’ve paid off your mortgage and you’re no longer supporting your children—so you can get back on track with building your nest egg. The catch-up contribution limit for 401(k), 403(b) and most 457 plans for 2024 is $7,500, meaning you can contribute up to $30,500.

If your retirement plan allows for it, sign up for automatic contribution increases so you can save on auto-pilot. Most likely, you won’t even notice the difference in your paycheck — but you will notice the gains you’ve earned come retirement.

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About the Author

Vawn Himmelsbach

Vawn Himmelsbach

Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.

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The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.