When it comes to making important financial decision we all want to make the best decisions. One of the most important financial decisions anyone can make is how to invest in a good retirement plan. Perhaps the most common means by which people save for retirement is investing in an IRA or 401k plan. There are two different types of these accounts, there are the Traditional IRA and 401k and the Roth IRA and 401k. There are a few differences between these two types of accounts and choosing one over the other is simply a matter of preference.
There is a saying that goes ?Would you rather eat your cake now, or later?? Lets look at of the differences between these two accounts. First of all an IRA account is a personal retirement account, whereas a 401k is pretty much the exact same thing, except that it is the professional term used by companies who offer it to their employees.
In a traditional IRA/401k account every investment you make into the account does not get taxed initially and it continues to grow tax deferred. However, when you are ready to take it out it will be taxed at the current rate of taxation. With this type of account you will be able to take home more money every year throughout your working years up to retirement, because your IRA/401k contributions are not getting taxed as regular income. However, when you reach retirement and being to receive your retirement payments, they will have to be taxed at the current rate. It is important to remember that as the years pass, inflation rises and so can taxes.
The Roth IRA/401k is basically the opposite. In a Roth IRA/401k you pay taxes on all of your yearly contributions to your account. However, after your funds are placed in the account you will never have to pay taxes on those funds again and it grows tax deferred as well. So if you invest in a Roth account, when you retire your retirement money from this account will last longer than if you had invested in a Traditional account, because you will not be getting taxed on it when you begin to receive your retirement payments.
Both of these retirement accounts are quite popular among people today. Take some time to figure out which plan will better serve your needs, ultimately it is up to you to decide which one is best for you.
Arturo practices smart financial investing. Please visit Investing in a 401K for more detailed information on investing in a 401k retirement account.
Source: http://phonesb.com/retirementplanning/ira-vs-401k-retirement-plans/
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