It's never too early — or too late — to start saving for your retirement.
Step 1: Know your rights Realize that even if you are already contributing to your company's 401(k) plan, you are free to establish an individual retirement account, or IRA, as well.
Step 2: Think about a Roth IRA Weigh the advantages of a Roth IRA. Taxes are taken at the get-go so you can withdraw money tax-free in your golden years. You may remove money, penalty-free, before age 59.5 for certain reasons, like buying a home, you may keep your money in it as long as you like, and you may continue paying into it past age 70.5 if you have earned income.
Step 3: Consider an IRA Consider a traditional IRA, which lets you defer paying taxes on the money you invest until you start withdrawing it at retirement. You can't contribute to an IRA past your 70th birthday, and you must begin taking distributions six months after that.
TIP: To qualify for a Roth IRA, your modified adjusted gross income can't exceed a certain amount. Check the Internal Revenue Service website (at "irs.gov":http://irs.gov) for current limits.
Step 4: Investigate providers Find an IRA provider to set up your account. Options include banks, brokerage houses, mutual fund companies, credit unions, and insurance companies. Banks and credit unions put money in CDs, insurance companies park your IRA dollars in annuities, and brokerage and mutual fund companies let you pick stocks, bonds, and funds.
Step 5: Ask about fees Before picking an IRA provider, ask about fees and commissions.
Step 6: Diversify your investments Diversify your investments so that you're mixing stocks (both U.S. and foreign), bonds, real estate, and commodities. Check out the index funds offered at brokerage houses; they offer low-cost diversification.
Step 7: Learn about self-directed IRAs If you're financially savvy and want to be a real estate speculator or help finance a new business, consider opening a self-directed IRA, which allows you to grow your retirement fund in nontraditional ways. To open one, search online for "self-directed IRA custodians."
Step 8: Make investing automatic Make contributions to your IRA automatic by having them withdrawn from your bank account or paycheck.
Step 9: Put in the maximum Put in the maximum allowed every year. You'll thank us later.
FACT: Thirty-nine percent of Americans have an individual retirement account, according to the American Association for Retired Persons.