By Guest Blogger Colleen S. Krcelich CPA, Northampton Community College

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For those anticipating a tax refund, many enticing options may cross the mind: Buy a TV? Pay down debt? Go on vacation? Not too many people think about using it to save for retirement, but that is a great use of the money! The earlier you begin saving, the better off you will be when you retire. In fact, you should always fund your retirement before even saving for a child’s college tuition. When you are 65, you don’t want to have to work a part-time job because you sent your children to college and didn’t save enough.

You may need to have $1 million saved if you want to draw $50,000 a year in retirement in addition to any Social Security you may be eligible to collect. Yes, that amount seems daunting, but it is attainable if you start early. It is best if the money you plan to access in retirement is all nontaxable, but that is usually not feasible. So, carefully plan your withdrawals to minimize taxes.

There are various methods to save for retirement. The best one for you will depend upon your age, income level, tax bracket, and employer. First and foremost, if your employer offers a 401(k) and does an employer match, always contribute the amount that maxes out the employer match. Say your employer will match 50 percent of the first 6 percent of your income that you contribute. That 50 percent is essentially free money. If you contribute $1,000 a year, the employer will put in an additional $500 on your behalf. You may have to remain employed by the company for a set number of years for that amount to vest. Also, be wary of investing your 401(k) contributions into your company stock, if that is an option. If the company fails you will lose both your job and your retirement savings.

If you have at least 10 years until retirement, and your tax bracket is low, consider a Roth 401(k) if your employer has that option. While the money is not tax deductible now, you will not pay tax on the amount at retirement. There is a good chance that you will be in a higher tax bracket when you decide to retire.

If your employer does not offer a 401(k) or another retirement plan, you can invest in an IRA or a Roth IRA. Both have a lower contribution limit than a 401(k), but they are still good options. Once you maximize your contributions to an IRA, the remainder should go into regular taxable savings or investment accounts.

Another option for tax-free retirement income is to invest in a whole-life insurance policy. This policy builds cash value each year as you pay on it, in addition to offering life insurance in the case of your death. At retirement, you can take out loans against this cash value. You have to make payments on the loan, but you are essentially paying yourself back, with interest. These loans are not taxable income for you.

Whatever path you chose, consult with your CPA and investment adviser. They will help ensure you are on the right track and can maintain the lifestyle you want in retirement.

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Colleen S. Krcelich, CPA, is an adjunct professor at Northampton Community College in Bethlehem, Pa., and a member of PICPA’s CPA Image Enhancement Committee.