I left my old corporate job, with its lovely 401(k) that offered cushy matching funds, in 2005.
The year after was such a financial disaster — I piled on credit-card debt like, well, a sailor on shore leave with a fistful of credit cards — that I didn’t make any retirement contributions at all.
But now, I am doing my 2007 taxes, and (huzzah!) I get to be responsible again. That means I’m making a contribution to my retirement funds.
For those of you who haven’t done so, you have about two weeks — till April 15 — to make contributions that count towards last year’s taxes.
If your firm offers a plan — like the one that Prudential California/Nevada/Texas Realty introduced last year — that’s great. They’ve already done the paperwork for you.
But even if your firm doesn’t, the chances are that you can contribute to a traditional IRA — or what I’ve got, a SEP, a freelancer’s Simplified Employee Pension. According to the IRS, you can put away as much as 25 percent of your income, as long as that contribution doesn’t exceed $45,000 — and as long as you calculate your income after you calculate the contribution that you’re making to your retirement.
If that’s as clear as mud, well, this is the time of year you might want to be strolling by your accountant anyway.
The driving idea, though, is pretty great: Now, when you’re working, you are paying taxes at a fairly high rate, and by making an IRA or a SEP contribution, you are deferring paying those taxes until later.
Presumably, when later comes, you will be making a little less money, and therefore you will be paying taxes at a lower rate.
And in the meantime, of course, your money can be quietly growing in its little tax-free sheltered space.
So how much should you put away? An investment rule-of-thumb is you want to try for 10 percent, but I have to say that’s not happening for me for 2007. However, anything is better than nothing, and if it helps you to play with an investment calculator, there’s a pretty good one at this link.
If you feel like you’ve got a long way to go, join the crowd. When the personal finance Web site Bankrate.com did a poll last September, one-third of the respondents said they aren’t currently saving anything at all for retirement. And presumably, that’s out of a skewed sample, because people who are motivated enough to read a personal finance site and vote in its surveys are probably ahead in the retirement race — I’d say at least half a lap ahead of people who aren’t.
A lot of the problem, of course, is that America as a whole has been on this binge where we shoved money into our mortgages, and the rising equity made us feel richer and richer, so we thought we didn’t need to save any other way.
But the sober financial planning people always told us it’s about both mortgages AND retirement.
So know, maybe some of the good the credit crunch can bring is to highlight that lesson, that you have to save two ways.
So you have about two more weeks to be responsible — not to some abstract cause, but to your future self that wants to live well, even at age 70. Get going.
Alison Rogers is a licensed salesperson and author of "Diary of a Real Estate Rookie."
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