NEW YORK (MainStreet) — Saving for retirement can be tough to stomach. We know it’s important, but it’s difficult to plan for something that’s years, and for some people, decades away.
A survey from the Employee Benefit Research Institution showed that 57% of consumers have less than $25,000 saved for retirement, while nearly half of the participants lacked confidence about being able to afford a comfortable lifestyle during retirement.
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Two widely used retirement accounts are the 401(k) and the Roth IRA. The 401(k) allows consumers to contribute pretax dollars, while money contributed to a Roth IRA has already been taxed.
The 2013 contribution limits for the 401(k) is $17,500 and $5,500 for the Roth IRA. Contributing to both accounts undoubtedly maximizes your retirement savings goals, but this nonetheless makes for a daunting task, especially if you’re living paycheck to paycheck.
Figuring out which account you should allocate more money to depends largely on how robust of a 401(k) program your employer offers.
If you’re able to save money beyond the threshold needed to secure your employer’s match, Potts suggests directing that extra money toward the Roth IRA.
A perk of the Roth IRA is the ability to withdraw your original contributions (excluding the amount of money earned from the growth of the investments) at any time without penalties. With the 401(k), you’re subject to a 10% penalty if you withdraw before age 59.5.