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Debt Handling-Individual Retirement Accounts and 401Ks

Debt and savings are inextricably linked: the larger your debt, the less money you can save. The larger your savings, the less you'll need to borrow. When you find yourself paying interest on borrowed money and not seeing interest come in from the savings you're not putting away, you're squeezed on both ends.

Rather than making those monthly payments on your credit cards, you could simply set aside this amount each month until you can afford those larger purchases outright. You need to decide for yourself which purchases are important enough to be worth paying interest on.

When it comes to saving for your retirement, however, there is something more important to think about - an Individual Retirement Account, or IRA. These are account specifically designed for retirement savings and they offer a number of benefits and very few risks.

Money placed in an IRA is by definition not being spent. This money earns interest which is compounded annually. You can see for yourself how compound interest can take a few thousand dollars now and make it into many thousands of dollars over a few decades. Any money put into your IRA is also tax deductible, which is an additional benefit.

You are taxed on the money which goes into your IRA only much later when you begin to draw on the account. The idea is that by this time you will no longer be in the workforce and be in a lower tax bracket. This is true for most retirees, but you may want to consult with a professional to make sure that an IRA will be the best solution for you.

While IRAs have changed since they were first introduced, the basics remain the same. You can place as much as $2,000 per year into your IRA tax free.

The Roth IRA is one especially popular type of IRA. As long as your contributions to the account stay for five years and you are 59 and six months or older, withdrawals from these accounts are not taxed. Roth IRA withdrawals are also untaxed if they are used towards the purchase of your first home.

The 401K (which takes its name from the 1978 IRS code which made it possible) is another popular way to save for retirement. These accounts can be contributed to by employers and are untaxed until the money is withdrawn from the account.

These are good savings vehicles for people who have a hard time saving; the money is taken out of your paycheck before it gets to you. There are many different types of 401K accounts; with different employers using different types.

IRAs and 401 K accounts can be a valuable part of your financial strategy - and the more you know about your personal finance options, the better you'll be able to make your money work for you.