You could stick your money in a savings account, a traditional brokerage account, or a dedicated retirement account, like an IRA or 401(k).
Retirement accounts come with tax benefits, either up front or in the future When you stick money into a regular savings or brokerage account, you don't get any sort of tax break on that cash.
On the other hand, if you contribute to a traditional IRA or 401(k), you get an immediate tax break on the money you put in.
Roth IRAs and 401(k)s work differently in that they don't offer an initial tax break for contributions.
So if, for example, you invest in a traditional brokerage account this year and realize a $2,000 gain, you'll be required to report and pay taxes on that $2,000 when you file your 2017 return.
With a traditional IRA or 401(k), your money gets to grow tax-deferred, so you won't pay taxes on your gains until you actually start withdrawing from your account in retirement.
Some retirement accounts give you free money Though you may not get any help funding your IRA, if your company offers a 401(k) and you choose to participate in its plan, you might snag some free retirement cash in the form of an employer match.
Imagine your company is willing to match up to 3% of your $50,000 salary each year.
If you contribute $1,500 of your own money and get an additional $1,500 each year from your employer for 20 years, you won't just be $30,000 richer come retirement.
Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.