How to Save for Retirement

We'll show you which retirement accounts may work for you, then walk through how to figure out how much to save.
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Read our guide to retirement planning
This article is part of NerdWallet's plain-language explainer on how to build, grow and manage your money.

A great way to save for retirement is in a retirement savings account. That's because retirement-specific accounts like IRAs and 401(k)s were created specifically to give people incentives to save for retirement.

These accounts are some of the best deals going: Unlike regular investment accounts, they give you a tax break on your savings, either upfront or down the road when you withdraw funds. And in between, your investments are shielded from the IRS and grow without being taxed.

So when we’re asked how to save for retirement, our answer is to take full advantage of the retirement savings accounts available to you whether you're a traditional worker or self-employed.

How to save for retirement in three steps

  1. Get your free money. If your company offers an employer-sponsored retirement plan, such as a 401(k), and matches any portion of the money you contribute, consider directing your dollars into that account, at least until you receive the full match. If your plan doesn’t offer matching contributions, or you don’t have a workplace retirement plan, start with the next step.

  2. Contribute to an IRA. We’ll help you figure out which type of IRA is better for you — a Roth or traditional — in a moment. The annual IRA contribution limit is $7,000 in 2024 ($8,000 if age 50 or older). If you're self-employed, there are retirement accounts for you also.

  3. If you max out the IRA, turn back to your 401(k) or other employer plan and continue making contributions there.

The 411 on 401(k) plans

There are a lot of perks to having access to an employer-sponsored retirement plan. A few of the biggies:

  • It makes it easy to save on autopilot: Money is taken out of your paycheck.

  • You may get paid to save: Many employers match a portion of employee contributions.

  • It’s one of the biggest tax havens: The 401(k) allows individuals save more than three times as much as in an IRA.

  • Investment gains are tax-deferred: As long as the money remains in the plan, you owe nothing as it grows.

The downsides:

  • Investment choices are limited: Investments available through a 401(k) are picked by the plan administrator and the selection is typically small.

  • Fees can erode your returns: In addition to investment expenses (which are charged by the investments themselves, not the 401(k) plan), there may be administrative fees charged by the company that manages the plan.

The conclusion: Consider investing up to the match and pay attention to fees. Even if it’s a great plan, the money you contribute still lowers your taxable income for the year and you get tax-deferred growth on investment gains.

Once you leave your job, you might want to roll over the money into an IRA to take control. Here’s how to decide if that’s the right move and how to do a 401(k) rollover.

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Retirement investment account types in a nutshell

We just threw a lot of retirement-account-related particulars at you. Just wait until we get to the minutiae of the underlying tax code.

Kidding! We memorized all that stuff and have distilled it into plain English so that you don’t have to go through it on your own.

Here are the must-knows about the main types of investment accounts for retirement savings — 401(k)s (which come in regular and Roth versions), the Roth IRA and the traditional IRA — starting with the pros and cons of each:


Traditional IRA

Roth IRA

Contribution limit

$23,000 in 2024 ($30,500 for those age 50 or older).

The combined contribution limit for all of your traditional and Roth IRAs is $7,000 in 2024 ($8,000 if age 50 or older).

Employer match

Many employers offer a match, typically around 3%.



Tax treatment

Contributions lower taxable income in the year they are made.

Distributions in retirement are taxed as ordinary income, unless a Roth 401(k).

If deductible, contributions reduce taxable income in the year they are made.

Distributions in retirement are taxed as ordinary income.

No immediate tax benefit.

Qualified withdrawals in retirement are tax-free.


Eligibility is not limited by income.

Deduction phased out at higher incomes if you or your spouse are covered by a workplace retirement account.

Ability to contribute is phased out at higher incomes. Contributions can be withdrawn at any time.

Investment availability

Funds in a 401(k) may be less expensive than identical funds purchased outside of 401(k). No control over plan and investment costs. Limited investment selection.

Large investment selection.

Large investment selection.

Required minimum distributions

Required minimum distributions beginning at age 73 as of 2023, and will increase to 75 in 2033.

Required minimum distributions beginning at age 73 as of 2023, and will increase to 75 in 2033.

No required minimum distributions in retirement.

Saving for retirement as a nontraditional worker

If you're self-employed or do non-traditional work such as freelancing or temporary work, you can explore specific self-employed retirement plans.

Some examples of self-employed retirement plans to consider include:

  • Solo 401(k): Ideal for a self-employed person or business owner with no employees. In 2024, you can contribute $69,000, plus a $7,500 catch-up contribution or 100% of earned income, whichever is less.

  • SEP IRA: For self-employed people or business owners with few or no employees. You can contribute the lesser of $69,000 in 2024 or up to 25% of compensation or net self-employment earnings, with a $345,000 limit on compensation that can be used to factor the contribution. Contributions can be tax deductible, but there are limits.

  • SIMPLE IRA: Suitable if you have a larger business of 100 employees or more. Contributions are deductible and you can contribute up to $16,000 in 2024.

» Learn more about self-employed retirement plans

Roth IRA vs. traditional IRA

There are other types of IRAs, but the two biggies are the Roth and traditional IRA. The main difference between them is how taxes work:

Traditional IRA: Depending on your income and whether you have access to a workplace retirement plan, the money you contribute may be tax-deductible. You fund the account with pretax dollars, and pay income taxes on money you withdraw from the account in retirement. Learn more in our guide to traditional IRA income and contribution limits.

Roth IRA: Contributions are not deductible — the account is funded with post-tax dollars. That means you get no upfront tax break as you do with the traditional IRA. The payoff comes later: Qualified withdrawals in retirement are not taxed at all.

There are other differences as well. (Interested parties can take a moment to hear more from both sides in our Roth IRA vs. Traditional IRA deep dive.) But for most people, choosing between the two comes down to the answer to this question:

When you retire and start drawing money from your investment accounts, do you anticipate that your tax rate will be higher than it is right now?

Not sure how to answer that question? That’s OK: Most people aren’t. For this reason, and the pluses outlined in the table above, you may want to lean toward the Roth.

If you believe your taxes will be lower in retirement than they are right now, taking the upfront deduction offered by a traditional IRA and pushing off taxes until later might be a solid choice.

Still undecided? You can contribute to both types if you’d like, as long as your total contribution for the year doesn’t exceed the annual limit. (See the contribution limits in the table above.)

Note: Some employers also offer a Roth version of the 401(k). If yours is one of them, follow this same line of thinking to decide whether you should contribute to that or the standard 401(k).

A word about IRA eligibility

Both traditional and Roth IRAs have restrictions in certain circumstances, which means that the choice between the two may be out of your hands. For example, if you have a 401(k), you may not be able to deduct traditional IRA contributions at certain incomes.

If you earn too much, you may not be eligible to contribute to a Roth IRA. For a full breakdown of Roth limits and phaseouts, read our guide to Roth IRA income and contribution limits.

Figuring out how much you need to save

Now that you know where to sock away money for retirement, the remaining question is: How much should you be saving?

Answer: As much as it’ll take to cover your retirement expenses.

OK, that time we were trying to be cheeky. But back to serious business: the brass tacks of calculating how much to save for retirement.

Aim to save at least 10% to 15% of your pretax income

That’s what most experts recommend, and it’s a good starting point for your own calculations.

If you decide that’s the only retirement savings math you’re going to do, you’ll be in pretty good shape. (Although if you’re a really late starter, you may have to make some adjustments.) But with just a little more effort, we can come up with a much more personalized retirement savings goal.

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How much will you really need to retire?

That’s the million-dollar question (plus or minus several hundred thou).

But seriously — don’t be intimidated by the high dollar figures we’re about to bat around. Time (the passage of which will allow your investments to grow), tax breaks and compounding interest will provide the wind you need to propel your retirement portfolio returns.

We told you upfront we’d spare you any mathematical heavy lifting. True to our word, all you need is your current age, pretax income and current savings for NerdWallet’s retirement calculator to tell you how much money you need to exit the working world by age 67 (Social Security’s full-benefits age for those born from 1960 on), or whatever retirement age you choose.

Plug those numbers into NerdWallet's free retirement calculator and it will project how much monthly income you'll have in retirement, based on your current savings, as well as how much you'll need to sock away.

Don’t like what you see? Consider that these results…

  • Aim to replace 70% of your annual pre-retirement income, which is a standard formula for calculating retirement needs. Why only 70%? Because some expenses will be lower, like commuting costs. And remember, you’ll no longer be saving 10% to 15% of your income for retirement.

  • Do not include any expected Social Security benefits, or any other sources of income, such as a pension, rental income or part-time work.

With the right tools (an investing account that rewards retirement savings) and a little investing know-how (the rest of this guide will provide that in spades), you could be on your way to becoming the very picture of retirement readiness.

Practical matters

Ready to open an IRA? Opening a Roth or traditional IRA is a simple process you can knock out in less than 30 minutes.

  1. Choose an online broker and open your account: Provide your contact information, Social Security number (for tax purposes), date of birth and employment information.

  2. Decide how to fund it: The investment firm can walk you through the process of initiating a bank transfer or moving money from an existing investment account.

  3. Choose your investments: Get guidance for how to invest your IRA.

» Ready to get started? Learn how and where to open an IRA.

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