Before you start building a retirement plan, its important to figure out where you are putting your money and what are the benefits of 401k vs Roth IRA plans.
It is a good idea to save all your hard money towards your retirement, so don’t be scared in planning. In fact, you should feel comfortable about the fact that you are preparing yourself for the retirement.
Everyone has a different plan and their needs also vary from one to another. But it’s a good idea to look into the options and benefits of both 401k and Roth IRA plans. You can then decide which is the best plan for you.
In many ways, both the options are very similar to each other. You invest a portion of your money each year, or on a monthly basis, and this money is later invested in various ways that you choose. This is all managed by a company and you don’t have to do too much maintenance. When its the time to retire, you start withdrawing money out of this account for your living.
Although both the plans look similar, but still there are many differences between the two.
A 401K is maintained by your employer. An employer will give you few investment plans to choose from so you have limited options. Many people like this plan because it is very simple to deal with while there are a few others who want more control.
Many employers offer a company match to your contributions somewhere between 1% – 6% of your salary. The money put by you in this plan is automatically deducted from your paycheck before taxes, and when you withdraw from the account during retirement, you have to pay taxes. You can withdraw funds from this account when you are 59 and a half years old.
In case of Roth IRA, everything is set by you. You will decide which company you want to work with, how your funds are to be invested, and make your own contributions towards your account. The money put by you into this account is taken after taxes. This means when you are withdrawing money in retirement, you don’t need to pay taxes on it. You can withdraw money out of this account anytime but its a good idea if you wait till your retirement and let your money grow by that time.
There are many things to consider when you are deciding on where to put your money. You don’t have to limit yourself to just one option. You can consider your company match, and your future tax obligations as main deciding factors when looking at 401K vs Roth IRA options.