Creating your future nest egg is a very important issue for everyone. Choosing the right path to retirement can have a big affect on how you will live out your golden years. When choosing the path that is best for you, its always good to analyze your options. Knowing the difference between Roth IRA vs 401k is a good start.
These long term savings plans have big tax benefits. To clear up any misconceptions, neither are ways of getting out of paying taxes. Instead the issue become at what time you will pay taxes and how much taxes.
With the traditional Roth IRA you will be taxed on income before money is placed in the account. The biggest benefit is that any money made from compounding is essentially tax free. Any withdrawals made from the account will not be taxed. Any earnings under certain conditions are not taxed either. There are no limits as to how long you can leave the money in the account. Money in this account can be willed to your family.
Your basic 401k works in reverse. Any monies placed in this account will not be taxed before deposit. However, any earnings, interest or gains will be taxed when you start withdrawing money. And you must start drawing on the account by age 70.
Choosing between the two takes a bit of speculation. If you believe you will be in a higher tax bracket when you start taking out money, then maybe the Roth is the best choice. Your basically taking the tax rate at the time of deposit.
Many retirees like to make thinks simple for themselves later on in life. Getting rid of mortgage, car and other large bills. They carefully live within a budget. This planning will keep them inside a particular tax rate. If this is an ideal lifestyle then the 401k is what you would want.
When building for the future its best to get great guidance. As will all investments you should seek the advice of an expert. Investment Advisory Services offered through John P. Dubots Capital Management, LLC, CA License # 0822926.
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