You already know the importance of investing in a 401(k) if your employer offers one, but what if that's not an option for you or you've already invested as much as your company will match? This is where an individual retirement account (IRA) comes in to play and there are two types: Roth IRA and Traditional IRA. Tax structure is the biggest difference between the two options.
If you're already participating in a tax deferred retirement plan (like a 401(k)) and your salary meets the income limitations for Roth IRAs, start investing while your salary is low enough to get in. If you're filing your taxes as single you can't earn over $95,000, and if you file jointly your income can't exceed $150,000. To learn what's so great about Roth IRAs just read more
The Roth IRA allows earned income that’s already been taxed to grow tax-free. Contributions to Roth IRAs are not tax deductible when they are made, but distributions made during retirement years are tax free. The principle (your original contributions) can also be withdrawn at any time without penalty, but earnings can't be withdrawn until age 59 1/2 without penalty.
Besides the tax free withdrawals that make a Roth IRA so attractive, another advantage is the absence of minimum withdrawal requirements. Traditional IRAs require that you make minimum withdrawals starting at age 70 1/2 whether or not you need the money, while the Roth doesn't come with this caveat.
G Star
Tory Burch
S***r
I have been thinking about an IRA. My company does not match in their 401(k), and I had heard that an IRA might be a better option.
Also, I plan on moving in the future, and would have to rollover my 401(k) to an IRA or another 401(k) when that happens, so I thought I might as well just skip the employer sponsored plan.
1I have a Roth and I feel it was the best option for me. I really like that there is a mandatory timeframe for me to start withdrawing the money.
If you want to dig deeper into retirement, I would recommend the book "Smart Women Finish Rich" by David Bach. It is an excellent resource.
2Oops! It should read "is not a mandatory."
3Thanks Saavy!
4I am planning on opening an ira for my 25th birthday in a month and was confused about the difference and which would be best for me...this helps a lot and I am also going to check out that book bfly
5Thanks for the great, simple explanation! I've been thinking of supplementing my 401K with an IRA but was undecided.
6I am glad to hear that muse.
I bet you could find it at your local library if you
weren't interested in purchasing it. Happy Early Birthday!
7I'm definitely taking advantage of my 401(k) at work, but I'm planning on opening a Roth IRA with this year's bonus. That will be the home of my future annual bonuses - easy way to contribute to it without changing my current month-to-month budget.
8Thanks for the information Savvy. I am actually opening a Roth IRA with my income tax. Thanks for all your help and advice.
9supercoolnat, that is exactly what i do! year end bonus goes straight into my roth. you don't really miss it then. a roth is a great option if you fit the guide lines because the theory behind it is if you are making that lesser amount now, you are in a lower tax bracket- therefore your post tax dollars that you contribute aren't taxed as highly. then some day when you are rich(!)and you are in a higher tax bracker, you take the money out tax free,at it saves you money that way!
10I'm all set w/ my Roth IRA. So glad my mom encouraged me to get one.
11I'm lovin' saavy sugar- this is one of my fav websites and yes I have retirement accounts of course!
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