by Lynn Jordan

Created on: October 26, 2007

When you are young, money is usually in short supply. The good news is that time is your friend when you are saving for retirement. The trick for accumulating retirement savings is to save a little regularly for a long time. Even when money is tight, there are ways to set some money aside for retirement. Saving a little now can make a big difference in your later years. A few dollars set aside every payday will make a big difference later.

There are several ways that let you save more while not reducing your take-home pay. Your circumstances will dictate what methods you can use. When your situation or income changes, you need to reassess the methods that will work best for you. All of these savings methods are meant for retirement investing. There are penalties and tax consequences for withdrawing this money early.

Most US employers offer employees 401K packages. (If you work for a public employer, the plan will be called a 403B.) 401Ks allow you to contribute pretax money. This means that your income is reduced by the amount that you contribute. Using 401Ks can lower your tax bracket allowing you to keep more cash while saving for retirement. Also it's quite common for employers to match some portion of your savings. You are throwing money away, if you aren't contributing enough to get the employer match. If your employer wants to help fund your retirement, let him. Also think about increasing your contribution when you receive a raise.

The income limits for IRAs are complex and change often. Check out the latest tax code before deciding on your retirement contribution. If you are in a lower income bracket, you may be eligible for a deductible IRA. This means the amount you contribute is deducted from your income. This threshold phases out as your income rises. Even if you aren't eligible for the deductible IRA, you can contribute for a traditional IRA. This will allow your interest to be tax deferred until you withdraw it. There is a limit to how much you can contribute to an IRA yearly.

A Roth IRA is funded with after tax money. However, the interest grows and can be withdrawn tax free if other conditions are met. The ability to contribute to a Roth IRA is reduced or eliminated as your income rises. Like the traditional IRA, the amount you can contribute has limits.

Choose one or a combination of these methods early in your working life. Save a little, but save often. Your retirement accounts will increase nicely given the benefit of time.

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