We already talked about contributing as much to your 401(k) as your employer will match. But what if you don't receive an employer match, you don't like the investment choices offered by your employer, or you're self-employed? You might consider investing in either a traditional or a Roth Independent Retirement Account (IRA).
Traditional IRAs function similarly to 401(k)s, in that you get a tax deduction for your contributions and pay taxes when you begin withdrawing the income. Roth IRAs are a little different: You pay taxes on your contributions, but you don't pay income taxes on the money you withdraw six months after turning 59. This can be beneficial if you're in a lower tax bracket now than when you retire.
The contribution limits are lower for these funds -- in 2012, $5,000 per year if you're under age 50, or $6,000 per year if you're 50 or older [source: Internal Revenue Service]. However, IRAs have several advantages that can make them a good alternative -- or supplement -- to a 401(k) plan. IRAs typically offer a greater range of investment options. You can borrow money from the accounts once every 12 months without paying penalties or interest as long as you replace the full balance within 60 days.
For lots more information on saving for retirement, see the links on the next page.