| 4. Establish an IRA and a Spousal IRA |
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| An Individual Retirement Account (IRA) provides tax-advantaged savings for retirement investors and may be an effective way to supplement your other long-term savings vehicles. Savings in tax-deferred accounts can compound more quickly than those in comparable taxable accounts. As long as you have compensation you can invest in an IRA and make contributions each tax year. |
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| Traditional IRAs offer tax-deductible contributions to qualified investors, and Roth IRAs offer federally tax-free withdrawals. |
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For all IRAs your investment compounds on a tax-deferred basis. |
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Your IRA contribution may be fully tax-deductible if you are not eligible to participate in a retirement plan through your employer or if you meet certain adjusted gross income (AGI) limits. |
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Spousal IRAs allow married couples filing jointly to contribute to two accounts even if only one spouse is a wage earner. And you may be able to take a tax-deduction for the non-wage earning spouse, since the deductible limits are higher at lower income levels. |
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Even if you're contributing to any type of workplace savings plan, you can still make an IRA contribution. |
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| IRAs have some restrictions; most notably the taxes and potential penalties if you withdraw funds before you reach age 59½. |
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| 5. Establish an Automatic Investment Program for Your IRA |
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| A common savings strategy is to save your money before you can spend it. Establishing automatic contributions to your IRA each month means you'll never forget to make a contribution. With Fidelity's Automatic Investment service, the exact amount you choose to contribute ($100 or more) is automatically withdrawn from your bank account and invested in your Fidelity IRA every month or every quarter.2 In many cases, establishing this service on your account will waive the account fee. |
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| 6. Consider Other Tax-Deferred Investments |
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| Tax-deferred annuities can be a smart way for long-term investors to save for retirement. Annuities provide tax-deferred growth potential of your assets and can also be used to create an income stream for as long as you live. Unlike individual retirement accounts, a tax-deferred annuity is an investment contract between you and an insurance company that allows for unlimited annual contributions. |
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| Determine if an annuity is right for part of your retirement savings plan. |
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| 7. Save in Taxable Investments |
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| Tax-deferred accounts are often the best way to make the most of your retirement savings and provide you with money "earmarked" specifically for your retirement. However, you can still take advantage of savings within accounts that do not offer specific tax advantages, such as brokerage accounts. |
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| Advantages of taxable investments for retirement include: |
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Increased liquidity, which means your money is available to meet an emergency short-term need without the early withdrawal penalties associated with tax-deferred plans. |
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Substantial additional accumulation toward your retirement, since there are no limits to the amount you can save in a taxable brokerage account. The sooner you begin investing, the more time your dollars have to grow toward your ultimate goals. |
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Avoidance of early withdrawal penalties, if you're lucky enough to be planning an early retirement. If you do not otherwise meet an exception, most tax-deferred retirement plans have an early withdrawal penalty for distributions taken before you are age 59½. If you retire earlier, liquid assets in a taxable account can help bridge the gap before you need to withdraw assets from your tax-deferred accounts. |
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| 8. Review Your Asset Allocation |
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| It is a good idea to review your asset allocations at least annually. Establishing an asset allocation plan and balancing your portfolio is one of the smartest retirement planning moves you can make. Fidelity has tools that can help: |
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Portfolio Review - In this tool, Fidelity offers straightforward, specific guidance — including analysis of your portfolio, asset allocations, and mutual fund recommendations — so you can fine-tune your portfolio to help meet your financial goals. |
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Portfolio Analysis (requires login) - Get a better idea of how your portfolio is diversified. This tool categorizes your investments into asset classes, including "look through" for mutual funds, giving you a more detailed analysis. |
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| 9. Protect Your Retirement Plan |
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| Making sure you have adequate insurance to protect your family in case you're not here to see your retirement plan through is critical. Find out if you have adequate coverage for your plan: Estimate your life insurance needs. |
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