IRA,Roth account,401k? ? Roth IRA News

A 401(k) is a type of retirement account offered by many employers. The main advantages of a 401(k) are: 1.) Your employer often matches a percentage of your contributions 2.) You get to invest pre-tax dollars in the acccount and 3.) the money gets to grow tax-free until you take it out at retirement. In other words, if your tax bracket is 25%, you could put $100 in your account, and yor paycheck would only go down by $75. The main drawback is that you have a choice of limited funds you can invest in, and sometimes that are offered aren?t very good.

A traditional IRA (or Individual Retirement Account) is a retirement account for individual investors. It?s advantage is that your money can grow tax-free until you take it out. Depending on your income, your contribution might be tax-deductible as well.

A Roth IRA is like a regular IRA, except that you put post-tax dollars into it. The huge advantage of a Roth IRA is, not only does the money grow tax-free, but it won?t be taxed when you take it out in retirement! There are limits to how much you can contribute to a Roth IRA ($4000 for those under 50 this year, and $5000 next year- add another $1000 to both of those if you are over 50.) There are also income limits to be elligible for a Roth IRA (less than $114,000 if you are single, less than $166,000 if you are married filing jointly.)

So here is what I would do:

1.) If your employer matches any percent of your 401(k) contributions, invest as much as you need to get the full company match. Ex: If your company matches 50% of the first 6% you contribute, you are guaranteed a 50% return on your money. If you don?t enroll up to the full company match, you are basically throwing money away!

2.) If you want to save even more, get a Roth IRA if you qualify for one. The tax savings on a Roth are such a great deal. Opt for a low-cost mutual fund (I am a big fan of the index funds offered by Vanguard and by Fidelity in their Spartan line.) Choose a stock fund if you are young, and a low-cost bond fund if you are approaching retirement.

3.) If you?ve maxed out your Roth IRA and STILL want to save more, contribute more to your 401(k).

4.) If your income is too high for a Roth IRA, get a regular IRA. There is a new law going into effect in the year 2010 that will let people convert a regular IRA into a Roth IRA, regardless of income. It?s a hassle, and you may have to pay taxes on your full investment (if it was tax-deductible) or your profits (if you?ve already paid tax on your contribution) but it still gets you the super tax saving power of a Roth IRA.

Source: http://rothira.solve-up.com/roth-ira/iraroth-account401k/

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