To realize your retirement goals it is recommended that you start by saving money in specialized retirement vehicles. These are the most common and some of the best ways to financially secure your future. The two most common categories are:

1. IRAs – personal retirement accounts
2. 401(k)s, 403(b)s and 457s – employer sponsored plans
   

Before going into the details of these accounts, it’s crucial to understand how retirement accounts work and why are they the best modes of saving for your future.

Retirement accounts are the most effective way of saving money for retirement because they combine the benefits of compounding interest, consistent savings and tax savings if used properly.

There are two basic types of IRAs:

1. Traditional IRAs: this plan allows individuals to contribute $4,000 if they are under 50 and $5,000 if they are 50 and over yearly with the contribution qualifying as tax deductible (in 2008, each of those contribution limits will increase by $1,000). The money invested in this IRA is not taxed until withdrawal, and withdrawals can be made without a 10% penalty beginning at the age of 59 and ½.
2. Roth IRAs: this plan is usually designed for people who have a backup of a company retirement plan or whose income exceeds the deductibility limits of the IRA plan. The contribution limits are the same as with a Traditional IRA; however, the money invested in a Roth IRA is not tax deductible, but in return you won't have to pay taxes when you finally start withdrawing from the account.
   

Only if you become disabled can you access the account before you turn 59 and ½ without penalty. Also, were you to die, your beneficiary can receive the accounts funds without penalty.

Finally, Roth IRAs don’t have a compulsory withdrawal condition. A Traditional IRA requires you to start withdrawing from the account at age 70 and ½ but a Roth IRA will allow you to continue making contributions even after that age.

401(k)s, 403(b)s, and 457s

These plans are sponsored by your employer with the different numbers effectively just being different tax code depending on whether you work for a corporation, non-profit, or the government. These plans fall are considered “defined contribution” because you know what is being added to your account but you are not guarantee a particular return at retirement. This is different than a “defined benefit” plan such as a traditional pension where an employer promises to pay a certain amount to you at retirement assuming you meet certain criteria – typically being over a certain age and having worked for the employer for at least a certain period of time.

With these types of plans, the value of the benefits you receive at retirement depend on the value of your particular account, meaning two employees at the same firm could have vastly different 401(k)s due to different contribution amounts and management of funds.

These accounts make retirement saving very easy because you elect to have your employer automatically put a portion of your pay into the account. Not only does it help you prioritize your retirement saving, but it also means your contributions to these plans are tax deferred.

Currently, you can contribute no more than $15,500 to one of these plans a year, though there are exceptions if you are over 50 years of age.

If you must withdraw from one of these plans before you reach 59 and ½ you will be penalized 10% except under certain tax code exemptions.

Finally, you must begin withdrawing from these accounts by the year after you turn 70 unless you are still actively working for the employer that is offering the particular plan. Failure to withdraw from these accounts results in an incredibly harsh IRS penalty.