Saving for your future is very important. You work all your life and you want to be able to live comfortably without working and enjoy the fruits of your labor. The Best Way to do that is to invest your money in either a 401k or IRA retirement fund. These retirement funds give you a lot of flexibility and tax benefits so you can maximize your savings. However, they are very different types of funds and must be used differently.
401k is named after the tax code which is relates too. This is a employer based retirement plan in which you pay money into the plan before you are taxes. The money is then invested into the stock options you picked. The employer also contributes to the number too. The money is taxed on the way out so if you are in a higher tax bracket you will have to pay more money.
With this type of plan, you can invest up to 14,000 dollars per year, which is the sum of both your contribution and that of your employer. A 401(K) is great investment if your employer is matching your contribution. If they are, you should always invest up to the that number. But since your probably will be in a higher tax bracket when you are older, you should focus more of your investments in a roth IRA, which is tax free upon withdrawal.
An IRA is for an individual person. It's just like owning a normal investment account as you can put the money in anything you want. You can hold cash, bonds, or stocks. The investment limit is $5000 a year for age 49 or below. The money you put in is after you paid taxes but it comes out tax free when you are older. However, you have to pay an early withdrawal penalty if you take money out before you are 59 1/2. You original contributions though are tax free at any time.
The bets strategy is to invest in both plans. Use the IRA to diversify your holdings while receiving a tax benefit and use the 401k to receive extra money from your employer and a smaller tax benefit. The best investment strategy uses both to receive the most money and the most tax benefits.
Investing for your future is important. If you want to be successful and receive the most tax benefits, it is a good idea to use both the ira and the 401k. Make sure you always invest in the 401k up to your employers contribution. Using these two methods you can save a lot for retirement. - 23210
401k is named after the tax code which is relates too. This is a employer based retirement plan in which you pay money into the plan before you are taxes. The money is then invested into the stock options you picked. The employer also contributes to the number too. The money is taxed on the way out so if you are in a higher tax bracket you will have to pay more money.
With this type of plan, you can invest up to 14,000 dollars per year, which is the sum of both your contribution and that of your employer. A 401(K) is great investment if your employer is matching your contribution. If they are, you should always invest up to the that number. But since your probably will be in a higher tax bracket when you are older, you should focus more of your investments in a roth IRA, which is tax free upon withdrawal.
An IRA is for an individual person. It's just like owning a normal investment account as you can put the money in anything you want. You can hold cash, bonds, or stocks. The investment limit is $5000 a year for age 49 or below. The money you put in is after you paid taxes but it comes out tax free when you are older. However, you have to pay an early withdrawal penalty if you take money out before you are 59 1/2. You original contributions though are tax free at any time.
The bets strategy is to invest in both plans. Use the IRA to diversify your holdings while receiving a tax benefit and use the 401k to receive extra money from your employer and a smaller tax benefit. The best investment strategy uses both to receive the most money and the most tax benefits.
Investing for your future is important. If you want to be successful and receive the most tax benefits, it is a good idea to use both the ira and the 401k. Make sure you always invest in the 401k up to your employers contribution. Using these two methods you can save a lot for retirement. - 23210
About the Author:
Joe James gives financial advice for a living. He resides in the southwest of the United States and is a retirement specialist. You can find out more information at his website, http://www.makegoodmoneywithme.com.
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