A Roth IRA is a popular way to save for retirement. It acts like a savings account, but generates a much higher profit and is designed to compound and grow for many years until the owner reaches retirement age. The profit that is earned is reinvested in the Roth IRA account until it matures to a set date (when the person wants to retire).

Money contributed to a Roth IRA is done on an after-tax basis. This means that you won’t have to pay taxes on the earnings when you want to withdraw from the account. In comparison, a 401(k) retirement account receives contributions before taxes are paid, so you have to pay taxes on them when you withdraw funds.

Roth IRAs also offer more flexibility than a 401k because you can withdraw the funds without the huge penalties before retirement (if you meet their criteria), where as withdrawals from a 401k before retirement results in high penalties and income tax implications.

Roth IRAs do not require that you begin withdrawing your money by a certain age. You are able to keep contributing to it for as long as you want to. Even if you have no intention of ever withdrawing the money, your beneficiaries will inherit it with no penalties attached to the money. They are able to keep the Roth IRA to let it keep collecting interest, or withdraw the funds – tax free.

There are some restrictions on Roth IRAs though. If you are single and make more than $110,000 per year, or if you are married and file taxes jointly, and earn more than $160,000 per year (or more), you’re not able to contribute to a Roth IRA. This doesn’t mean you can’t save for retirement, there are many other options available for you to set up a retirement fund too, just not with a Roth IRA. On the other end, if you only make $3,000 per year, you are only able to contribute (at most) $3,000 per year to a Roth IRA. For everyone else, you are able to contribute a set amount (determined by age) annually.

Depending on your financial situation, a Roth IRA may be a great single, or additional retirement plan for your future. It is always best to get started saving money for retirement right away, and with compounding interest it will only help you save more if you start sooner. If you work at a place that matches or gives a percent on a 401(k) plan, it is always advised to do that too, who doesn’t like free money from their employer?

In a couple of reports recently released from the U.S. Small Business Administration, the findings were over 50 million people working in the American workforce don’t have any type of employer-sponsored retirement plans, and of those offered them, over 50 percent don’t bother enrolling in them.

Now this is look upon as a big deal by the government study, but for those of us looking to increase out savings and build up a retirement fund, the importance isn’t what particular vehicle we use to build it up, but rather that we have plan in place we consistently contribute to.

First of all, let’s very briefly not that while the numbers above may be accurate in general, they don’t necessarily reflect the reality of the situation. Many government studies like this don’t delve deeply into what is happening, and can give a distorted view of things. For example, many people included in the study have a spouse which is building up their retirement through their workplace, and so the other spouse doesn’t use their particular fund, nor care about doing it. That skews the numbers, and changes a lot of the ominous feelings associated with it.

Another factor could be many people are saving on their own and investing some in a way that they aren’t attracted to a retirement plan offered in the workplace. I’m like that, but then I know a lot about investing and savings, and have the discipline to do it.

What I want to get at in this article is no matter what savings or investment vehicle we use to build our retirement fund or our cash on hand in case of emergencies, we must take charge of that strategy and own it. Nobody cares whether you’re prepared or not, and if we don’t take charge of our finances, nobody will.

Even if you do have an employee retirement plan you have entered into, you must make decisions on how you want you capital dispersed in it, in the sense of the level of risk you’re willing to take and other factors related to it. Do your homework even here, don’t just let someone else make the decision for you.

A basic rule of thumb is the younger you are the more risk you can take. While the older you get the more the term safety should be part of your practical investment strategy.

If you’re the type that has no discipline whatsoever in finances, then if you’re offered a chance at a retirement contribution through work, that would probably be the best way for you to do it.

What I’m saying is it’s not necessary to have that to build up your retirement fund, especially if you’re not offered it through your job or you don’t want to participate in it.
 
Again, it’s more important to have a plan you’re consistent in contributing to than what that plan is.

Many people say they aren’t able to afford giving to a retirement plan. Okay, if that’s you, just take a few dollars a month and start in a money market or savings account at your bank. Just don’t do nothing, as it creates habits that are hard to break even when you do generate more income.

Something is better than nothing no matter how small the beginning is. This especially true in building a retirement savings fund. If you don’t take charge of your financial future, there is no one else out there that will bother to take the time to do it.

Concerns from the economic crisis have those quickly approaching retirement wondering how to continue to grow their retirement fund in order to retire comfortably.

If you’re one of them, or are in your mid-40s, you want to start thinking in terms the catch-up provisions allowed by law for the time you reach 50, whereby you can put away another $5,500 into a 401(k), 403(b), or government 457 plan. Any of these quality for the extra money.

So whether you’re late to the funding of your retirement game or are approaching 50, there are options available where you can make up those lost years. It’s better to start right where you’re at than to think you’re too late and do nothing about it. That’s why the added incentive of $5,500 a year is allowed for those 50 or older in age.

What’s amazing about this particular provision, is it has been in place from the government since 2002, yet only about 13 percent of those eligible use it to build up their retirement nest egg. Incredible when you think of what another $5,000 a year can build up to over a decade or two.

Another valuable part of the catch-up provisions is the additional ability to put away another $1,000 to a Roth or traditional IRA, as well as another $2,500 to a Simple IRA. All of this can make a huge increase in your retirement when implemented together.

That means if you take full advantage of the catch-up provisions for the approved of retirement accounts listed above, you could put away $22,000 annually there; $6,000 a year in a Roth or traditional IRA; and $14,000 more to the Simple IRA (including $2,500 catch-up). Not bad at all.

Most people balk at this point because they wonder where they’re going to get the extra money to invest. But there are a ton of ways to cut back on expenses when you start thinking about it, and you begin at the things you’re paying for you don’t need to have.

Can you walk or ride a bike rather than pay for an expensive health-club membership? What about all the bells and whistles on a mobile phone contract? Do you really need the hundreds of channels on your cable TV contract?

You get the idea. There are tons of ways to cut back expense without completely taking away some of the enjoyment and pleasures of life. Just step back and look at them objectively and you’ll find hundreds of dollars a month available to use the catch-up provisions which allow you to put away thousands more a year into your retirement.

Once you get to that age, you’ll be glad you took the steps and a little bit of temporary sacrifice to do it.

With the collapse of the banking system and unsurety of a lot of investments, many people are rightfully concerned about where to put their money; not only to increase it, but to even hold on to it.

Although we usually talk about what is considered very safe investments at Savings Toolbox, there is one investment that has been largely ignored for a long time because it’s somewhat boring and unexciting to talk about or invest in, and that is the incredible safety and value in targeting companies that pay out dividends.

With safety being one of the major concern at Savings Toolbox, we’ll focus on how you can invest in a company that almost ensures a good return for years into the future, no matter what the current economic conditions are, and whether the stock price goes up or down.

The secret in this is to find companies that have a record over a period of time of raising their dividends year after year. That means that they are in a great competitive position and as Warren Buffett would say, have a moat around them protecting their business from competitive pressures.

For example, take Wal-Mart (NYSE: WMT). Every year since they became a public company, they’ve increased their dividend year after year. So whether their stock price went up or down or not didn’t matter, you still build wealth through the dividends always kicking in. Any company that has a proven record of increasing their dividends every year means they have a competitive advantage over the market of markets they serve, and even if you don’t understand their overall business, that in itself will be one of the key metrics to use in determining how strong of a company they are.

The second part of the power of investing in a company for their dividends is to be sure to reinvest those dividends back into the company. That will build up uninterruptedly for years into the future, and ensure a safe and sound return until the day you want to tap it for retirement.

Why can this happen? When a company starts to mature while dominating their market, the need for capital to market and expand the business at a strong pace recedes, and so capital expenditures decrease, making the company strong in cash, which is the key to ongoing dividends.

So our job is to find companies like a Wal-Mart and others that have been around even longer, and find out the history of their dividend payments. When you do, you understand that they have prospered during good times and bad, and so can be counted on to build your wealth with a long term horizon in mind, and do it safely. Don’t underestimate of be afraid of investing in these companies, just to invest in companies that don’t have that type of proven dividend-increasing track record.

It might appear that this is for those who are younger and have time to follow the advice given, but it is never too late to begin planning to make your dreams come true.

Plan early for it. Not just in the financial way, but in the planning for enjoyment part, too. Once you have written down your financial goals for retirement, write down goals for things that you want to do as a part of retirement. Do not be afraid to put things on your list that you might think are too big. You will never know what you can achieve until you are willing to dream about and plan for it.

Reduce your debt as you go. This doesn’t mean just paying off your house. You must work towards debt freedom throughout all of your life. Imagine being able to retire with no debt other than monthly recurring expenses. Then, the income from your retirement will sustain you easily.

Invest in 401k and IRA accounts. Begin early and invest often and generously. If you are young, your savings will add up quickly and by the time you get to retirement age, you will have more than enough to draw on and use to support you throughout all of your retirement.

Plan to give to others. Once you find that all of your needs are cared for, be sure to have a will in order to pass on anything you leave behind. Or, if you so desire, look for organizations and opportunities to which you can give money. Philanthropy has its own rewards in the satisfaction that it provides those who give generously to see a goal met or need covered.

Refuse to sit still. You might be like some and find that retirement bores you. Find something to which you can give your time. It could be a second career or something that you always wanted to pursue but making a career change before never made financial sense. There are opportunities all around you.

You might even consider getting involved in the Small Business Administration and help fledgling businesses make wise choices and use their resources wisely as they benefit from your years of experience.

Remember that retirement does not mean sitting in a rocking chair the rest of your life. It means making the best of the time that you have now that your primary career is over and your retirement has officially begun. Indeed it can be the best time of your life.

Good savings accounts are sometimes hard to find. You can usually find the best rates at an online bank but you have to also be aware of other factors such as whether there’s a minimum balance requirement or whether there are monthly fees if you fall below a certain amount. These days you should also do a background check on every bank to see if it’s in any sort of financial trouble.

Home owners insurance. Due to market fluctuations, your house might be worth less than it was even a year ago. While that looks badly, the thing to keep in mind is that you are probably paying home owners insurance on the higher amount at which the house was valued. You are advised to look at the policy and adjust down the coverage amount if it makes sense. You can save hundreds of dollars by doing this. If your house is paid for, review your policy and make sure you are not paying for too much insurance based on the fact that you only need to replace the house with a residence that will serve your needs, not a palace.

Grocery Shopping. The biggest area that everyone gets caught up in is impulse buying. If you have a strategy to reduce or eliminate this, you can save a significant amount of money. First, have a list when you go shopping. Do not deviate from that list unless absolutely necessary. Ask if you can wait on the purchase until later. That will at least get you out of the store without making the purchase. Later on, you will be amazed at how reality sets in and you really do not need it as badly as you thought you did when you were standing in front of the display (blame it on the slick marketing). Next, go shopping less often. We are used to jumping in the car and running to the store whenever we need just one or two items. If they are not mandatory, you can put them on your list for later.

Prescription drugs. Generics – check into them. Often times, doctors are not asked about generics for the medications that are prescribed. The first rule of saving money here is in asking. Next, if there are no generics available, ask your doctor if there is an alternative drug which will accomplish the same treatment, but does have a generic. Some doctors are influenced by the drug sales reps and like to push the meds for which they are being rewarded financially, so it never hurts to ask.

Do not lend money to family. Here is one that has come back to hurt so many retirees. It is such a strong emotional issue that often times the desire to help a family member overrides common sense. This is your money for your retirement. If you give it away, then you might not see it again. And think about how that will drive a wedge between family members. So, the best advice is to refuse to do this. Or if you do, then consider it a gift (whether or not you tell them) and do not ever expect to see it again.

Travel package deals. Look around and compare prices. Just because you are buying a package targeted at seniors does not mean that you are getting the best prices on travel. Always compare prices and you might be surprised at what you find.

These are simple things, but can save so much money. Not only that, but they will make your retirement years that much more enjoyable.