- Contributing to a 401K or traditional IRA - I like 401Ks and traditional IRAs because contributions are before taxes. Thus, contributions are partially funded by the government, since our tax liability was reduced. As I've written before, I like the idea of using other people's money to fund our retirement savings.
- Taking advantage of an employer match in a 401k - To me, an employer match is like getting free money. If an employer matches 100% up to 3% of one's salary, then it is the equivalent of getting a 100% return on up to 3% of salary. There are not many investments that can guarantee a 100% return.
My spouse's employer matched up to 2% of her salary. Unfortunately, my employer did not match. However, I still contributed to take advantage of the tax benefits from #1.
- Avoiding an early withdrawal - The penalty for early withdrawals is typically 10%, unless it is for a qualifying reason. In addition, taxes may also need to be paid on all or part of the withdrawal. While there may be good reasons for an early withdrawal, 10% is a pretty high penalty to pay for non-qualified expenses.
Doing the above does not necessary guarantee sufficient retirement savings. However, I think doing these helped us to retire, especially since we retired early.
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This is not financial or retirement advice. Please consult a professional advisor.
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