401ks Vs Roth IRAs
Roth IRAs and 401ks are both great ways to save up your money safely for retirement. But which one of these plans offers the best deal for you? Which one should you focus on?
There are advantages and disadvantages to both plans. The best option for you may depend on your specific situation. So, how do these retirement plans actually work?
401k plans allow you to invest pre-tax money into a savings account and have it grow tax free. Your money remains tax free until you eventually take it out when you retire. In this case you have to pay income tax on the amount that you do take out.
Roth IRAs work differently. You pay your taxes up front, but as long as you follow the Roth IRA rules all of the money that you make from your initial investment is tax free. This means you are able to get a tax free income when you do retire, which is a very good thing.
There are pros and cons to each plan, but basically it all comes down to what tax bracket you are in now and what tax bracket you think you will be in when you retire. If you believe that you will be in a lower tax bracket when you retire then a 401k would work better because you get taxed in the future.
On the other side if you believe that your taxes will be higher in the future, Roth IRAs are going to be a fantastic way to take advantage of it. This way you can pay taxes now at a lower rate and avoid them when you are in a higher tax bracket.
Your specific circumstances will determine what the best option probably is. Even so you might want to look into investing into both. Most people are eligible to invest into both a 401k and a Roth IRA. This way you will be able to benefit from the advantages of both plans and save even more money. This can be a very nice option and worth looking into.
Article Source: FxTradingStock.com
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For more information about 401ks vs Roth IRAs or other information about saving for retirement visit 401k information
by: Shaun Rosenberg
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Word Count: 358
Date: Thu, 22 Jul 2010
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