Take a few minutes to set yourself up for a sunny retirement.
The season of sunshine and vacation is fast approaching. Most of us also dream of some sort of endless vacation at the end of our working lives: Retirement. Yet, only 13 percent of Americans feel certain they're going live a life of leisure after 65. About half of us shrug our shoulders and think it'll just never happen for us, according to the Employee Benefit Research Group.
While you're planning your summer vacation, take a few minutes to set yourself up for a sunny retirement as well. Let's take a quick look at some of your options.
The 401(k) is the common gold standard in sock-it-away options, because you can save up to $17,500 each year in pre-tax dollars for your retirement, and reap company matching money. And, if both you and your spouse work, you can both save the maximum each year. You can also put money in a Roth IRA at the same time - up to $5,500 for each working spouse - unless your combined income is more than about $178,000 each year.
Then there's the traditional IRA. If you're employed, you can stash up to $5,500 each year in a traditional tax-deductible IRA. If you're a stay-at-home, non-working parent, you can contribute up to $5,500 into a tax-deductible spousal IRA every year. If you aren't already taking advantage, do!
Roth IRAs are useful accounts for parents. Contributions are after-tax, so they don't immediately reduce the tax bill, but you pay no income taxes on the money when you withdraw it in retirement. Tax rates are near "historic lows" and will likely only rise in our lifetimes, said Brad Huffman, a financial planner with Future Finances, so it's wise to pay the lower rate now rather than a higher rate later.
A Roth can also be used as a college savings account: Withdrawals are tax- and penalty-free if used for higher education expenses. If you don't use the money for junior's tuition, it's still available for retirement. In 2013, you and your spouse can each sock away up to $5,500 into a Roth IRA, with some hitches: $5,500 is the max you can contribute to both a Roth and a traditional IRA combined. You can't max out both.
A self-employed retirement plan is a must-have if you claim income from a home-based business or as a freelancer. You can stash up to $11,500 each year in a Simple-IRA; $17,500 in a solo 401(k); or 25 percent of income up to a maximum of $50,000 in a SEP-IRA. Call a broker to ask questions and see which plan is right for you.
If you're saying "Gah! Where am I going to get that kind of money?" remember, these are the maximum annual contributions. Saving even a small fraction of that will still yield huge benefits, and it might not cost as much as you think out of pocket to save more. Contributions don't reduce your paycheck dollar for dollar, because you're likely cutting your tax bill as well.
Use one of the many free handy calculators such as Bankrate's 401(k) tax-saving calculatoror Charles Schwab's calculators to see how saving more will impact your take-home pay.
-Denise Trowbridge is a self-professed money geek who writes about personal finance, banking and insurance for The Columbus Dispatch, bankrate.com and middlepathfinance.com.