Beef Up Your Retirement Savings -- Your 401(k) May Not Be Enough

Beef Up Your Retirement Savings -- Your 401(k) May Not Be Enough

Updated May 14, 2012 at 2:26 PM CDT

Beef Up Your Retirement Savings -- Your 401(k) May Not Be Enough (371)

(NewsUSA) - 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) probably won't provide that kind of income alone.

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Traditional IRA: The original, or "traditional," IRA, allows retirement contributions to grow tax-deferred until withdrawn (potentially speeding their growth).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: The newer Roth IRA offers tax-free growth. Taxes are paid up front. Because contributions are made with already-taxed dollars, 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 That means contributions (but not earnings) can be withdrawn tax-free, without penalty at any age.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.

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 In 2010, income limits that have traditionally kept high-earning individuals from converting to a Roth will be repealed, making it easier for anyone to make the switch!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.

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Deposit products offered by Discover Bank, Member FDIC.

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