401k vs Roth IRA

When you are building a retirement plan it's important to consider where you are investing and what the benefits are of 401k vs Roth IRA plans.

The fact that you are saving towards retirement is really the most important fact of all, so try not to be scared in your planning and take comfort that you are setting yourself up for retirement, and that is a great thing.

Everyone's plans and needs are different, so I won't tell you what to do, but we will look at all your options and the benefits of both accounts and with that information you can decide what is best for you.

In a lot of ways these options are very similar. You invest some of your earnings each year, usually on a monthly basis, and this money is invested in various ways that you've chosen. All of this is mostly managed by a company without a lot of maintenance by you. When it comes time to retire you start withdrawing money from this account to live on.

While they do have these basic similarities, when we look at a traditional 401k vs Roth IRA we see a great number of differences.

A 401K is maintained through your employer. Your employer will have a few investment plans for you to choose from, which means you have less options. Some people appreciate this fact because it makes things simpler, others want more control. Many employers offer a company match to your contributions to a point, most offering a match of somewhere between 1-6% of your salary. The money you decide to put into this plan is taken from your paycheck automatically before taxes, and when you withdraw from at the account in retirement you have to pay taxes then. You cannot withdraw from your account until you are 59 and a half years old.

With a Roth IRA (Independent Retirement Account) you are setting everything up on your own. You find a company to work with, you decide how your funds will be invested, and you make your contributions to your account on your own. The money you put into this account is taken after taxes, which means that when you withdraw funds in retirement you do not have to pay taxes on this money. You can withdraw from the account at any point, although it's of course better to let your money grow until you reach retirement.

There are obviously a number of things to consider here when deciding where to invest, remember that you do not have to limit yourself to one option. Consider your company match, and your future tax obligations as main deciding factors when looking at 401K vs Roth IRA options.