Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
A 401K and a Roth IRA are quite different. The 401K plan is employer sponsored and may include matching funds from the employer. The limits to how much can be placed in the 401K are much higher. The amount you put into the 401K is untaxed income but fully taxed when the plan starts making distributions. All distributions incur income tax, and early distributions could be subject to a tax penalty.
The Roth IRA is an individual plan that is restricted to people whose income is below a prescribed level. The contributions to the plan are made with after tax dollars; however, the distribution at retirement is income tax free.
Some companies do offer a Roth 401K, which is a marriage of the two plans. Contributions are made with after tax dollars but distributions are income tax free when received after age 59.5.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
Which is better a Roth or a 401k? Well, what are you trying to accomplish and have you given thought to doing both plans? They basically work in opposite ways. The 401k allows you a tax break now to be paid later on the money distributed from the fund. The idea is you will be in a lower tax bracket so you're coming out ahead. The Roth does the same thing in the opposite way. You pay your taxes on the contributions and take the money later for free. So with a Roth you're paying taxes now, to avoid paying later.
Regional Marketing Director, Capital Choice Financial Group,
Both investment plans are great used in conjunction with each other. The 401k is always going to be your first choice because the employer is putting matching funds into your account and this will help you reach your financial goals quicker. while adding a bit more safety to your account. As for how much to contribute, I tell me clients to deposit up to the company match and the open a Roth IRA where you can use after tax funds and not pay taxes on the proceeds when withdrawn for retirement. Another benefit of the Roth is that you can withdraw any amount of your investment dollars without penalty for emergencies but, the growth received cannot be withdrawn before 59 and one half.
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A 401K and a Roth IRA are quite different. The 401K plan is employer sponsored and may include matching funds from the employer. The limits to how much can be placed in the 401K are much higher. The amount you put into the 401K is untaxed income but fully taxed when the plan starts making distributions. All distributions incur income tax, and early distributions could be subject to a tax penalty.
The Roth IRA is an individual plan that is restricted to people whose income is below a prescribed level. The contributions to the plan are made with after tax dollars; however, the distribution at retirement is income tax free.
Some companies do offer a Roth 401K, which is a marriage of the two plans. Contributions are made with after tax dollars but distributions are income tax free when received after age 59.5.