Roth IRAs Vs 401ks
401ks and Roth IRAs are two different kinds of investment vehicles that you can choose from. But which one is better, 401ks or Roth IRAs? Which one is a better place to put your safe, retirement money into?
Each plan has its own pros and cons. But before we can tell which one is better, let us figure out how they work and what the difference is.
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.
A Roth IRA is the exact opposite plan. Instead of avoiding taxes now and paying them in the future you are able to pay the taxes up front and avoid paying taxes on any profits that you make on your money. For example if you invest $20,000 into your account and it is worth $80,000 by the time you retire you can take out the entire account tax free. This means that the entire $60,000 profit that you made is also tax free.
Each has its own advantages and disadvantages, but the biggest difference by far is the tax benefit. If you believe that your taxes will be lower in the future after you retire then a 401k plan can work better because it allows you to pay your taxes in the future and avoid them now.
On the other hand if you think that your income and therefore tax bracket will be higher in the future then a Roth IRA will probably be better because you can pay taxes now when they are lower and avoid them when they are higher.
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
About the Author
For more information about 401ks vs Roth IRAs or other information about saving for retirement visit this 401k information page.
by: Shaun Rosenberg
Total views: 31
Word Count: 373
Date: Fri, 17 Dec 2010
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