- If your employer offers a 401k plan, you usually can set your own contribution amount based on a percentage of your income. The percentage you specify is deducted from your paycheck on a pre-tax basis, allowing you to save money on your taxes while building your retirement savings. For 2010, you can contribute up to $16,500 to your 401k account.
- The 403b plan works much the same way as the 401k. The main difference is the type of business that offers it. While 401k plans are used by private employers, 403b plans are offered by public employers, including schools, hospitals and governmental agencies. For 2010, the 403b contribution limit is the same as the limit on 401k plans. That means you can contribute up to $16,500 a year to the plan through regular payroll deductions.
- The IRS allows workers who are 50 years of age and older to contribute extra money to their 401k and 403b plans. This catch-up provision is intended to give older workers a chance to catch up on their savings before they start drawing the money out in retirement. For 2010, those older workers are allowed to contribute an extra $5,500 to their plans, for a total annual contribution limit of $22,000.
- If you contribute to an IRA, you can save money on your current tax bill or enjoy the prospect of tax-free withdrawals in retirement. With a traditional IRA, you can take a tax deduction for the money you contribute. If you choose a Roth IRA instead, you give up that immediate tax deduction, but you gain tax-free withdrawals when you retire. For 2010, you can contribute up to $5,000 to either type of IRA. You can also divide that $5,000 between a Roth IRA and a traditional IRA, as long as you do not exceed the contribution limit. If you are at least 50 years of age you can contribute an extra $1,000, for a total annual limit of $6,000.
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