Investing for Your Retirement
Many people wonder what financial tool they should get- a 401(k) or an IRA? The answer really depends on your income. If you are loaded with cash, you can contribute to both. The question you have to ask yourself is this: Are you in a position to pay tax today and earn tax free income during your retirement days or you would rather defer your tax liabilities. In a Roth IRA scheme, you have to pay your taxes pre-investment but enjoy retirement without tax liability. With a 401 (K), your investments are tax free on the way in but taxable on the way out.
Sometimes one doesn't have a choice and you have to get a 401(K). A 401(k) is a pension scheme setup by employers. If you have your own business you obviously cannot hope to make use of a 401(k) scheme. This also means an individual has to abide by the rules of the scheme provided by his current employer and the stock and investment options they have. Many companies do not have a 401(k) scheme. Moreover, what happens when you change jobs? In most cases, you have to shift your 401(k) plan to the new employer's program. The best part about a 401(k) is that your employer also contributes to the savings so you can get additional money.
In a 401(K), you can invest up to 14,000 dollars per year and that includes both your contribution and that of your employer. Employee and employer combined contributions must be lesser of 100% of employee's salary or $46k. 401(K)'s are good investment so long as your employer's matches your contributions. But the thing to think about is this: do you plan to be in a higher tax bracket when you are older? If the answer is yes, then you want to invest more of your money into an IRA.
IRA's are meant for individual people and can be used to invest in any you want. Unlike a 401k, it is not tied to your job so you don't have to be tied to an employer's plan. There is a 5,000 dollar limit to your investment and you can't take the money out until you are 59 1/2. However, since the money put in is already taxed, the money coming out is tax free. It's the opposite of a 401k.
You should invest in both if you can but always invest in the 401k if your employer matches your contributions. You want to think about what your tax bracket will be when you are older too. If it will be higher, you would want to consider putting more money into an IRA. Both options are good and should be used but the balance of where you put the most money depends on the type of plan your employer offers and the amount of flexibility you want.
No matter what investment option you choose make sure you max out that option. Maxing them both out is better. That way you save the most money for your future and pay the least amount of taxes on it. Saving for your retirement is important and these two methods are the best way to do it. - 23204
Sometimes one doesn't have a choice and you have to get a 401(K). A 401(k) is a pension scheme setup by employers. If you have your own business you obviously cannot hope to make use of a 401(k) scheme. This also means an individual has to abide by the rules of the scheme provided by his current employer and the stock and investment options they have. Many companies do not have a 401(k) scheme. Moreover, what happens when you change jobs? In most cases, you have to shift your 401(k) plan to the new employer's program. The best part about a 401(k) is that your employer also contributes to the savings so you can get additional money.
In a 401(K), you can invest up to 14,000 dollars per year and that includes both your contribution and that of your employer. Employee and employer combined contributions must be lesser of 100% of employee's salary or $46k. 401(K)'s are good investment so long as your employer's matches your contributions. But the thing to think about is this: do you plan to be in a higher tax bracket when you are older? If the answer is yes, then you want to invest more of your money into an IRA.
IRA's are meant for individual people and can be used to invest in any you want. Unlike a 401k, it is not tied to your job so you don't have to be tied to an employer's plan. There is a 5,000 dollar limit to your investment and you can't take the money out until you are 59 1/2. However, since the money put in is already taxed, the money coming out is tax free. It's the opposite of a 401k.
You should invest in both if you can but always invest in the 401k if your employer matches your contributions. You want to think about what your tax bracket will be when you are older too. If it will be higher, you would want to consider putting more money into an IRA. Both options are good and should be used but the balance of where you put the most money depends on the type of plan your employer offers and the amount of flexibility you want.
No matter what investment option you choose make sure you max out that option. Maxing them both out is better. That way you save the most money for your future and pay the least amount of taxes on it. Saving for your retirement is important and these two methods are the best way to do it. - 23204
About the Author:
Joe James gives financial advice for a living. He resides in the southwest of the United States and is a retirement specialist. You can find out more information at his website, http://www.makegoodmoneywithme.com.
posted by X - Men @ 2:51 AM
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