Is it better to invest while deferring payments of taxes until you are retired? Or is it better to invest with pre-taxed dollars until you are retired? Most of you would probably prefer to invest with pre-taxed dollars, because you can accumulate money with no tax. With the first option, when taxes are postponed and your money is allowed to grow tax-deferred, the tax liability increases. Anyone want a big chunk of their retirement taxed by Uncle Sam?
ROTH IRAS
Many of you have recognized the advantage of your investment growing tax-free, and many of you have deposited money or convert traditional IRAs, or 401 (k) s into Roth IRAs. Most of us would agree that contributing to a Roth IRA is a great step in the right direction. Sure our contributions are not tax deductible. But all your earnings are tax free, provided that withdrawals meet certain requirements.
Withdrawals can distributed without penalty
- On or after the owner of the fund reaches 59 ½
- In case of the owner’s death
- For the purchase of a first home, with a limit of $10,000
- In the case of the owner’s disability
Your eligibility to contribute in a Roth IRA cannot exceed a certain yearly income for married and single taxpayers. In addition, your yearly contribution is limited too. Check with a professional for more information. In addition, Roth IRAs can be rolled over tax-free to other Roth IRAs.
Employer Matching Benefits
True matching is where the employer agrees to match dollar for dollar. If an employer is willing to match your 401(k) contributions dollar for dollar, then it’s in your best interest to accept. Given you contribute the least amount required to qualify for the full matching benefit. Many employees contribute more than the minimum required, thinking that it’s the best way to save for retirement. It’s not the best way to save for retirement, because in a 401(k), any distributions will be subject to tax. It makes more sense to contribute the minimum, and invest the difference in a fund that grows tax-free. Then you will have your 401(k) that you and your employer contribute to, and your other fund that grows tax-free.
Conclusion
It seems like today the responsibility for your retirement is you, not anyone else. The most important factor in choosing investments is to choose investments that give you tax-favored benefits during accumulation. There will be more articles that talk more in depth about investing and planning for your retirement. Thank you for reading
Tags: 401 k, Retirement, Roth IRA, tax, tax deffered
