BOSTON (CBS) – Retirement planning should start with your first job. But retirement planning is usually the one thing people put off because retirement seems so far away. If you are guilty of slacking off use your tax refund to increase your retirement savings.

Increase your contribution by the amount of the refund to your retirement plan at work that would be your 401(k), 403(b) or 457 deferred comp plan if you work for the state. Use the refund money to make up the lost income over the remainder of the year.

If you don’t have a retirement plan at work consider using an IRA for retirement savings. If there is no plan at work your IRA will be deductible. You can contribute up to $5,000 this year and if you are over 50 there is a catch up provision and you can add an extra $1000 to the account.

Consider starting a Roth IRA with the tax refund. Limits are the same for all IRAs, $5000 for this year and $1000 if you are over 50. But with a Roth IRA there is no upfront deduction. But when you withdraw the earnings in retirement there will be no income taxes due.

There are income limits; if you are married and filing jointly and earning more than $166,000 the amount you can contribute begins to be phased out and is gone once you reach $176,000. If you are single, you can contribute the full amount if you earn under $105,000 and the contribution is phased out as you reach $120,000.

A $3,000 addition to your retirement account at age 40, assuming a 8% return by the time you’re 67 could be worth almost $24,000, do that every year for the next 27 years and you could have over a quarter of a million dollars ($286,000).

What about helping your kid set up her IRA? If she has earned income for this year, offer to match her savings if she sets up an IRA. Match her dollar for dollar and show her what her nest egg could look like in the future. Use a Roth IRA for she doesn’t need a deduction.

A twenty-year-old contributing $2000 a year for 47 years could be a millionaire when she retires.

Spousal IRAs: This is an IRA funded for a spouse with little or no income by a spouse with income. The combined income of the spouses must be at least equal to the amount contributed. A Roth IRA may also be used for the spousal IRA. If you are an at home spouse you may want to consider using the refund to set up a spousal IRA.


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