The rules on investment plans get more complicated every year. The rules regarding who is eligible for what plan, how much can be contributed to each plan, and when you can withdraw from different accounts are constantly changing and becoming more and more confusing. Let?s cover the basics between a 401K, IRA, and a Roth IRA.
To get in on 401K investment opportunities, your employer must offer the plan to you. You cannot set these up on your own, but many companies will offer to match part or all of your contributions, so you could get ahead for free if one is offered through your job. This is free money that adds to your running principal and gives you more money when you retire. You can put all of your money into this account, or combine it with an IRA for maximum profit in the future.
A 401K allows you to decide what percentage of your income you want to go directly into the fund, and since you do not pay taxes on your contributions until you take them out at retirement, the more you contribute, the less taxable income you will have right now.
Whether this is a good deal for you in the long run depends on where you see your income falling when you retire and receive disbursements from the account. If you think you will be in the same income bracket or a lower one, you could benefit from these accounts. If your wages will increase considerably in the years ahead, then you could come out even more ahead by going with a Roth IRA.
A traditional IRA is very similar to a 401K, but it is not offered through your employer. This option is especially useful if you work for yourself because you get the benefits of a 401K but set the account up on your own.
You pay taxes each year on your IRA contributions, but you also receive a tax deductible in the exact amount, so in the end it is the same as a 401K. You will have to pay taxes on the money when you start taking withdrawals, so the same considerations that apply to a 401k apply to a traditional IRA.
A Roth IRA is also opened by you and is not open to employer-contribution matching. The difference here is that you pay taxes at the time of contribution, going on your current tax bracket and rate.
With a Roth IRA, you have more access to your money if you want to take it out before you retire, and since you take the money out tax free it can be good for people who will be in a higher tax bracket in the future.
If you?re ready to make an investment towards your retirement, visit 401k advice or try visiting http://www.accountretirement.net ? a great information source for Roth IRAs, 401ks, and much more.
Source: http://www.investingworldtoday.com/ira-investing/choose-your-investment-401k-ira-or-roth-ira/
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