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.
An IRA is a pension scheme meant for individuals. You can decide on when to invest, how to invest and the amount which you plan to invest in a particular year. The investment limit is $5000 a year for age 49 or below; $6000 a year for age 50 or above in 2009. These limits are total for traditional IRA and Roth IRA contributions combined. Withdrawals are tax free up to the limit you have paid in. This is because you already paid taxes on them before you invested. Unlike a 401(K), this is made by you and not tied to your job. You can hold cash, bonds, or stocks. IRAs are subject to a lot of rules but are more flexible in terms of investments than a 401(K).
You should invest in both if you can. This way you get the most benefit on your taxes. Investing in a 401k reduces your taxes now and an IRA reduces your taxes in the future. The trick is to find the right balance so you are always saving money on taxes. The best deal though is the IRA as you will probably pay more taxes in the future so you don't want all the money in a 401k to be taxed at a high percentage.
Investing for your future is important. If you want to be successful and receive the most tax benefits, it is a good idea to use both the ira and the 401k. Make sure you always invest in the 401k up to your employers contribution. Using these two methods you can save a lot for retirement. - 23199
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.
An IRA is a pension scheme meant for individuals. You can decide on when to invest, how to invest and the amount which you plan to invest in a particular year. The investment limit is $5000 a year for age 49 or below; $6000 a year for age 50 or above in 2009. These limits are total for traditional IRA and Roth IRA contributions combined. Withdrawals are tax free up to the limit you have paid in. This is because you already paid taxes on them before you invested. Unlike a 401(K), this is made by you and not tied to your job. You can hold cash, bonds, or stocks. IRAs are subject to a lot of rules but are more flexible in terms of investments than a 401(K).
You should invest in both if you can. This way you get the most benefit on your taxes. Investing in a 401k reduces your taxes now and an IRA reduces your taxes in the future. The trick is to find the right balance so you are always saving money on taxes. The best deal though is the IRA as you will probably pay more taxes in the future so you don't want all the money in a 401k to be taxed at a high percentage.
Investing for your future is important. If you want to be successful and receive the most tax benefits, it is a good idea to use both the ira and the 401k. Make sure you always invest in the 401k up to your employers contribution. Using these two methods you can save a lot for retirement. - 23199
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.figuringoutfinance.com.
posted by X - Men @ 2:39 AM
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