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10 Ways to Build a Nest Egg


9
Contribute to an IRA

If you don't have a 401(k), then it's important to open up an Individual Retirement Account, or IRA. Like a 401(k), an IRA allows individuals to save money and invest in stocks, bonds and mutual funds. There are many tax advantages to an IRA. However, if you withdraw the money early, you have to pay a penalty and taxes.

There are two main types of IRAs. The first is a tax-deferred IRA. In a tax-deferred IRA you don't have to pay the taxes until you begin withdrawing the money when you retire. The second is a Roth IRA. In a Roth IRA you pay the taxes now when rates are lower, not later when taxes are higher. Maxing out the contributions to a Roth IRA is a good idea, because you can shelter more money than you can in a typical IRA [source: Updegrave].

How this all works is very complicated. In short, the more money you put into a Roth IRA the better the return on your investments. When you retire, you won't pay any taxes when you begin withdrawing money [source: Updegrave]. The maximum Roth IRA contribution in 2010 was $5,000 for those younger than 50, and $6,000 for those over 50 [source: IRS].