How do I start saving for retirement?

If you’re not inspired by the idea of saving for retirement, try thinking of it this way: You're planning for financial success. So how do you get going? Start with these three key steps.

1. Dump the debt/get the 401(k) employer-match. If you have high interest debt, such as money owed on credit cards, you should consider paying it off. Very few investments, if any, will give you returns that can offset the interest rates you pay on credit card balances or other types of high interest debt. So, first things first: Consider paying off such debt, so you can stop paying that interest. Furthermore, if you have a 401(k) at work and your employer matches your contributions up to a certain amount, be sure to take full advantage of it. You should generally contribute at least enough to get the maximum employer match—it's like free money.
2. Consider an IRA. If you don't have a 401(k) at work, or you've contributed at least enough to get the maximum employer match, consider opening an Individual Retirement Account (IRA) to save more. Both 401(k)s and IRAs have tax benefits, but IRAs are established and maintained by you, whereas 401(k)s are sponsored by your employer.
   
   

   What are some of the differences?

   • With an IRA, you typically get a broad choice of investments, sometimes even more than in a 401(k). However, an IRA might not offer the same share classes or fee structures as a 401(k), so you should compare.
   • In certain cases—if you're buying a house, for example—you may be able to withdraw funds from an IRA without having to pay a penalty tax (but will pay ordinary income tax on the taxable portion of the distribution) or pay back the funds. With a 401(k), you may borrow money from your account without a penalty tax (if plan allows for loans), but you must repay the funds to your 401(k) over time.
   • With an E*TRADE from Morgan Stanley IRA, there are no account fees or minimums, so you can compare with your 401(k) to see if there is any cost advantage.¹
   • On the other hand, the maximum contribution limits for an IRA are significantly lower than for a 401(k) (see step 3 for more on that).

   Rollovers

   Another nice thing about IRAs is if you change jobs and have an old 401(k) hanging around, you can transfer those assets into an IRA and get the benefits of broad investment choices, individual control, and zero account and maintenance fees.¹ It's called a Rollover IRA, and there are several options to think about.²

3. Max out your 401(k). If you hit the maximum contribution limit on your IRA but can still save more, remember that you may be able to make additional tax-deductible contributions to your 401(k).³ In other words, max out your 401(k) if you can. The potential tax benefits are likely worth it.

Remember, it's never too early or too late to plan for a secure financial future. These three steps will give you a solid start.