Company-provided 401(k) plans often have the benefit of a company match, which can increase retirement funds dramatically over time. For those who don't have access to a 401(k), and individual retirement account allows savers to take advantage of compound interest. Savers have the option of a traditional IRA, in which contributions aren't taxed until you withdraw them during retirement, or a Roth IRA, in which funds are taxed before being added to the savings, but withdrawals are not taxed.
Young workers generally have the most to gain by saving in Roth accounts. "For retirement purposes, a Roth is a really wonderful tool. It's tax-sheltered. It's all going to grow tax-free," Helm says. And in the case of an emergency, you can always pull out money you contributed without penalty or tax, he adds. The Roth IRA is a particularly advantageous option for young savers who are likely in a lower tax bracket than they will be upon retirement.
Students moving from job to job in their early careers can expect the money they've already saved to follow them, Fragasso says. "[Other] than the unvested portion of the employer's contributions, it's going to follow you, and you have the option of either rolling it into your new employer's plan … or doing your own IRA rollover."
The IRA rollover may be a smart option for workers changing jobs, Helm says, because it simplifies the number of accounts they have to manage. "Get [your accounts] consolidated into as few places as possible because it's a lot easier to keep track of," Helm says. He also warns that students should avoid pulling the money out of the account, as that can lead to fees that significantly reduce the money saved.
Develop a habit of saving. Simply getting started can be the most important step toward retirement – and one of the most difficult. "No matter what the other pressing demands are, put something away, because when you get out of the habit of saving, you stay out of the habit," Fragasso says. Continuing that habit throughout a career is as vital as starting off right. "Consider that the horizon until retirement, while distant, is nevertheless finite," Fragasso says. "Figure out that every month you don't contribute for yourself is a paycheck wasted and the lost opportunity of compounding for decades on that money."