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How's your retirement plan?

If you are not already saving money for retirement, you should consider putting money away, even if you can afford only a small amount each month. There are a number of different types of retirement plans, but we would like to bring your attention to three key categories:

- Employer-sponsored plan: If your employer offers a retirement plan, it is likely that they will match your contributions. The typical match is 2% of your salary. So, if you earn $3,000, you may contribute $60 each month and so will your employer. You will be getting an extra $60 from your employer each month, and your $120 should, in theory, grow in line with financial markets. The key tax benefit is that you get to deduct your contributions from your taxable earnings. Instead of being taxed on $3,000, you will pay income tax at your applicable rate of $2,940.

- Traditional IRA: An IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. Contributions to an IRA may be fully or partially deductible, and amounts in your IRA (including earnings and gains) are not taxed until distributed, similar to employer-sponsored plans. Any individual can set up a traditional IRA if they receive taxable compensation during the year. An individual can have a traditional IRA even if covered by an employer-sponsored retirement plan.

- Roth IRA: A Roth IRA is an individual retirement arrangement similar to a traditional IRA. However, unlike the first two plans, Roth contributions are not deductible, but when you start taking qualified distributions, they will not be taxable. Both Traditional and Roth IRAs have extended contribution deadlines - you can contribute up to $6,000 ($7,000 if you are over 50) until April 15th of the following year.

All these plans have rules to follow, and you may have to pay tax and penalties if you take the money out prior to turning 59 1/2. You should familiarize yourself with each type of plan before committing to invest money. Once you decide which type of retirement plan is best for you, you should decide on how your contributions should be invested.

When you invest in your retirement, you may qualify for a Retirement Savings Contribution Credit (up to $1,000 each year).


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