- 1). Choose whether you will be contributing to an employer based plan or an IRA account. As of 2010, the IRS allows you to contribute up to $16,500 of pre-tax earned income in an employer-sponsored 401k but only $5,000 into an IRA. Employer plans may also have employer contributions increasing your savings.
- 2). Call the human resources department for your employer to see if you are eligible to enroll in the employer plan. If you are, request the enrollment package that should include the payroll deduction form. Fill out the paperwork electing a 10 percent salary deduction then submit everything to the human resources department.
- 3). Open an IRA account at a bank, brokerage firm or online custodian. Ask friends and family about IRA custodians or investment firms they would recommend or conduct an online search for "IRA accounts."
- 4). Calculate 10 percent of your paycheck. If you make $5,000 monthly, this would be $500 per month or perhaps $250 per paycheck if you are paid twice a month. If you made this contribution monthly, you would exceed the IRA limit of $5,000 annually by $1,000.
- 5). Request an automatic contribution plan from the IRA custodian. To fully contribute $5,000 into the IRA annually, you will need to contribute $416.66 every month. Provide the custodian with your checking account information where your paychecks are deposited and request the IRA contribution to be automatically pulled from the account the day after each paycheck is deposited.
- 6). Place the remaining money into a savings account at your bank. When you have $5,000 saved you can open an annuity as another supplemental retirement plan that defers taxes on the earnings. Some annuities have lower opening payments with monthly contributions; speak with a financial advisor about your options.
- 7). File Form 8606 with your tax return Form 1040 to record your IRA contribution.
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