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.
401k is named after the tax code which is relates too. This is a employer based retirement plan in which you pay money into the plan before you are taxes. The money is then invested into the stock options you picked. The employer also contributes to the number too. The money is taxed on the way out so if you are in a higher tax bracket you will have to pay more 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.
The bets strategy is to invest in both plans. Use the IRA to diversify your holdings while receiving a tax benefit and use the 401k to receive extra money from your employer and a smaller tax benefit. The best investment strategy uses both to receive the most money and the most tax benefits.
Saving for your retirement is important as you want to be able to afford all the things you want to see and enjoy when you are older. By investing in these options, you'll be able to maximize your retirement savings. After all, your goal is to never work again so you'll want to save as much as you can. - 23221
401k is named after the tax code which is relates too. This is a employer based retirement plan in which you pay money into the plan before you are taxes. The money is then invested into the stock options you picked. The employer also contributes to the number too. The money is taxed on the way out so if you are in a higher tax bracket you will have to pay more 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.
The bets strategy is to invest in both plans. Use the IRA to diversify your holdings while receiving a tax benefit and use the 401k to receive extra money from your employer and a smaller tax benefit. The best investment strategy uses both to receive the most money and the most tax benefits.
Saving for your retirement is important as you want to be able to afford all the things you want to see and enjoy when you are older. By investing in these options, you'll be able to maximize your retirement savings. After all, your goal is to never work again so you'll want to save as much as you can. - 23221
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.financialinformationandadvice.com.
posted by X - Men @ 1:00 AM
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