You’ve probably heard the buzz about new funding options for 401ks and Roth IRAs. If you’re like most, you’re confused by the lack of info out there. The information available is confusing and it’s too easy to find yourself making a mistake. Hopefully this fund funding worksheet will provide you with the information you need to make a sound decision.
Let’s start with the most common forms of funding. 401ks and Roth IRAs have similar requirements, but there are a few key differences. Roth IRA contributions are tax deductible. You are allowed a certain amount of Roth IRA money at retirement, but withdrawals are taxed. A Roth IRA takes time to build, which makes it a better choice for your long-term needs.
Your 401k is all about saving money. It provides a good amount of income, if you were to hold onto it until retirement. Typically, in order to keep it open, you have to pay fees, and have a minimum amount of money in it.
If you are a seasoned investor, you might consider saving for a Roth IRA as a supplement to your 401k’s. You might be able to get some tax breaks if you do that. But, it might not be a smart idea for you if you are just starting out.
Instead, you should look at a 401k and an Individual Retirement Account (IRA). IRAs provide an immediate income when you retire and can be held for a longer period of time than 401ks. This is the one step you should take if you’re at risk of running out of money when you retire.
When you put money into an IRA, it grows tax-deferred. That means that you pay taxes on the interest, dividends, and capital gains when they are earned. There are some tax credits available to you as well, so that you can make up for the cost of doing this. And, if you use these credits to lower your taxes, you’ll find that your income goes up quicker than it would with 401ks.
Regardless of whether you choose a 401ks or an IRA, you should always pay attention to your expenses. Remember that money isn’t growing in the bank the way it did before. It will be a while before you reach retirement.
You might be able to avoid bankruptcy if you choose an IRA. It will pay for itself in taxes, you never have to pay. You just have to consider all your options and decide for yourself what is best for you.