Many young people do not consider retirement but they should when they consider a job or employment. Businesses, corporations and companies offer away to invest through 401(k) Or A Roth IRA as way for employees to save for retirement. An emergency fund or savings is necessary later in life simply because as we age we have many medical issues that may be addressed. Medical bills can accumulate and no way to pay them. You might need to dip into your retirement fund or use credit to pay it off which realistically is not a good alternative because in the future the money saved in retirement is what you will need to live on comfortably. So you may want to check on information about the company you work for to see what is offered.
Does the company offer a 401(k) Or a Roth IRA?
When a company offers a 401(k) plan they will match a percentage equal to that of an employee. This provides you; the employee’s contribution is done through a salary reduction in many cases on a pre-tax base however some do a post-tax contribution. There are few major 500 companies that still offer their employees a profit sharing option especially if the company has improved their quarterly production within a given year. The plan may also offer the employee away to invest their monetary funds by using selective investment products or allow them to by secured stocks in the company.
- Employee contribution of a 401(k) plan is based on a rate of fifty cents for every dollar contributed or equal to a guaranteed portion of your salary.
- If you have the choice where you are employed it is best to choose a 401(k) when it is available. Of course it also depends on personal tax situation and the goal you want to achieve for your retirement.
Having a 401(k) Or A Roth IRA can benefit a person’s retirement but when a company does not offer a 401 (k) a Roth IRA is beneficial for a way to plan for retirement. Since the law has changed the age of retirement and the end of the “Baby Boomers” are beginning the age of 50 it makes sense to invest money into a Roth IRA. However a Roth IRA, Traditional IRA or both to have the contribution for the year which cannot exceed the lesser of $5,500 or 100% of earned income cumulative of both types of IRA’s. In 2014 if you are 50 years old or older the amount has to be $6,500.00. The government has placed laws to stipulate and the interest that IRA’s can accumulate over a period of time.
- The benefits of having the Roth IRA compared to the Traditional IRA are that the Roth IRA contribution may be withdrawn at anytime without an income tax or a penalty tax of 10 %.
- Another benefit with having a Roth IRA is that the conversion amounts may be taken out without having an income tax or after five years a 10% penalty tax to pay.
- Meeting the eligibility requirements of having a Roth IRA and being able to deduct contributions from the federal taxable income and can reduce the taxes you may owe.
Of course with a Traditional IRA the money accumulates is tax deferred but eventually you will pay taxes on it but only when you withdrawal the money before you reach the age of 70. You can also start by taking minimum distributions each year after your 70th birthday.
It is important that many of us have invested through contributions to 401(k) or Roth IRAs each year. The idea of saving money for the future is up to what fits our financial needs but at any giving time can change. When we decide to save for our retirement the IRA belongs to us and we have the flexibility to use it with discretion. Whether it is for a serious illness that has acquired large medical bills, having children in college or having you return to college for a Master Degree.
Companies that do not offer 401(k) plans give employees the only option of having Traditional IRA, Roth IRA’s, certificates, mutual funds, bonds and company stock. If you have to make a choice do some research on your own at a number of stock websites to see what the current interest rate is at and the projection. Remember you are trying to invest your hard working money you earned into something that will give you growth as you get toward the retirement age. Since, we would all like to enjoy a comfortable retirement in the future finding the best way to save is always in a person’s best interest. Especially if you think that income tax rate is going to be considerably lower at retirement it makes sense to defer paying taxes now when you can. So investing in a Roth IRA for the future is an alternative with so many companies getting rid of the 401(K) offers.