1. Retirement Planning For 20-Somethings: Introduction
  2. Retirement Planning For 20-Somethings: When You Should Start Planning
  3. Retirement Planning For 20-Somethings: Goal Setting
  4. Retirement Planning For 20-Somethings: Saving Options
  5. Retirement Planning For 20-Somethings: Choosing Savings Accounts
  6. Retirement Planning For 20-Somethings: How Much Should You Add To Your Retirement Nest Egg?
  7. Retirement Planning For 20-Somethings: Signing Up For Retirement Savings Accounts
  8. Retirement Planning For 20-Somethings: Choosing And Managing Your Investments
  9. Retirement Planning For 20-Somethings: Incorporating Lifecycles In Your Planning
  10. Retirement Planning For 20-Somethings: Retirement Resources
  11. Retirement Planning For 20-Somethings: Conclusion

Choosing the account to which you add your retirement savings is very important, as your choice could affect the amount of income tax you pay on withdrawals and the net amount you receive for withdrawals made overtime. The following are some factors to consider:

  • If you have the option to make salary deferral contributions to an employer-sponsored retirement plan, and your employer makes matching contributions, your salary deferral contributions should be no less than the amount that you need to get the maximum amount of matching contribution available, unless you cannot afford to contribute that much. Failing to contribute up to the amount needed to get all of the matching contribution available means that you would be leaving money on the table.
  • If you have the option of choosing between a Roth and a traditional retirement account, work with your financial planner to determine which of the two would be more suitable for you. There are many factors that are taken into consideration when making such a choice, including your current and projected future tax rates. In some cases, your financial advisor may determine that splitting your contributions between both types of accounts is the most suitable option for you.
  • Consider whether you are eligible for the savers credit. The savers credit provides eligible taxpayers with a non-refundable tax credit of up to $1,000 for contributions made to IRAs and salary deferral contributions for the year. The savers credit helps to offset the cost of funding your retirement account. As such, if you are eligible, it might be more beneficial to add amounts to your retirement account instead of a regular savings account or other tax-friendly savings vehicle. For an explanation of the savers credit, see Saver's Tax Credit: A Retirement Savings Incentive.
  • A defined contribution and defined-benefit plan can include provisions for official loans, which allow you to borrow the lesser of 50% of your vested account balance or $50,000. Loans can be used for personal reasons, including making a down payment toward the purchase of a primary home. Loans are required to be repaid within five years, except for those that are used towards a primary residence, which are allowed longer repayment periods if needed. These loans can come in handy when you are in need of funds and unable to get loans from traditional lending institutions, or if you simply prefer to borrow from yourself and make repayments to your accounts instead of paying interest to a lending institution. If the availability of a loan is a feature to which you want to have access, it may make sense to add amounts to your qualified plan account so that the balance grows to an amount that is sufficient to allow the loan that you need.
You may also want to consider whether the account has restrictions on when you can make withdrawals. This is important from two primary perspectives. If you save in an account that does not have withdrawal restrictions, you might be tempted to "borrow" from the account; if you are not able to repay the amount your nest egg would be adversely affected. If the account has restrictions on withdrawals, such as disallowing withdrawals until you reach age 59.5, you would not be tempted to make withdrawals before retirement.

Retirement Planning For 20-Somethings: How Much Should You Add To Your Retirement Nest Egg?
Related Articles
  1. Retirement

    It’s Never Too Late to Contribute to Your 401(k)

    Find out why it is never the wrong time to start contributing to a 401(k), even in your late 30s, 40s or 50s; discover how to maximize your savings at any age.
  2. Retirement

    3 Reasons To Use An Employer-Sponsored Retirement Plan

    If you aren't participating in your employer-sponsored retirement plan, you're missing out! Learn the benefits.
  3. Retirement

    The 4 Essential Elements of a Retirement Plan

    Learn about the four essential elements of an effective retirement plan, including maximizing your contributions and understanding your investment options.
  4. Retirement

    Should You Borrow From Your Retirement Plan?

    It makes sense to dip into your savings in some cases, but you must be aware of the potential consequences.
  5. Financial Advisor

    8 Essential Tips For Retirement Saving

    Whether you're a saver or a financial advisor who wants to give clients a leg up, these 8 tips are essential for financial planning.
  6. Retirement

    Why Small Retirement Savings Count

    Don't be put off by the $1 million retirement savings figure; even small savings are worth having.
  7. Retirement

    The Downside of Spending Retirement Savings

    Thinking of borrowing or withdrawing funds from your nest egg to cover a financial emergency? You may want to find other alternatives. Here’s why.
Frequently Asked Questions
  1. Why is social responsibility important to a business?

    Take social responsibility seriously, and your business could benefit from happier, more productive staff members while helping ...
  2. Which socially responsible retailers appeal most to ethical investors?

    Learn why ethical investors have many options in the retail sector, and discover which retail companies are most popular ...
  3. What are Some Examples of Free Market Economies?

    Learn which of the world's economies best resemble free market economies, marked by free trade, low government involvement, ...
  4. Who Decides When to Print money in India?

    Find out the role of the Reserve Bank of India, or RBI, and the amount of authority given to the government. Learn who is ...
Trading Center