Because of the tax advantages, contributing to an employer-sponsored retirement plan, such as a 401(k), 403(b), 457, SIMPLE or SARSEP, is usually the best first step in retirement planning:
* Contributions are generally pretax, so they reduce your taxable income.
* Plan assets can grow tax-deferred— meaning that you pay no income tax until you take distributions.
* Your employer may match some or all of your contributions—also on a pretax basis. At minimum, contribute the amount necessary to get the maximum employer match.
Note that, if you’re age 50 or older, you’re eligible to make a “catch-up” contribution.
In certain situations, other tax-deferred savings options may be available:
If you’re a business owner or selfemployed. You may be eligible for a plan that would allow you to make much larger contributions. Depending on the plan, you might not have to make 2008 contributions, or even set up the plan, until after year end. If your employer doesn’t offer a retirement plan. Consider contributing to a traditional IRA:
* You can generally deduct your contributions, though your deduction may be limited based on your adjusted gross income (AGI) if your spouse participates in an employer-sponsored plan.
* Contribution limits, including for catchup contributions, are lower than those for employee contributions to employer sponsored plans.
You can make 2008 IRA contributions as late as April 15, 2009.