As you begin to think about planning for your retirement, you’ll need to choose a retirement vehicle that is right for you. Since there are pros and cons to every savings plan, our chart provides an analysis of 401k vs Roth IRA.
Last week we started looking into retirement plans such as 401ks and IRAs, and the different strategies that people use to manage their finances as they enter into retirement. Sometimes you don’t have to pay taxes on the money you invest into retirement plans, like IRAs, so one strategy is to hold off on withdrawing from your account until you’re in the lowest possible tax bracket. People who follow this practice will wait until their taxable income decreases substantially enough that they enter into a lower tax bracket than they were in when they were working, so that they have to pay less on the money they withdraw from their retirement accounts.
Employee sponsored retirement plans, such as 401(k)s, are popular methods of saving for retirement for many working Americans. 401(k) contributions are made with pre-tax dollars, which means that tax payment on that money is deferred until the funds are removed from the account. In addition to the money put into the account, any investment earnings made within the plan are also tax deferred until their removal at a later date. Workers who participate in 401(k) savings plans often roll the balance of these plans into a traditional IRA after their retirement so that they can extend their tax deferral.