Roth IRA
Knowing which would work for you – Roth IRA or 401k?
The Roth IRA quickly became popular ever since the Average American got access to it in the year 1998. Unlike the 401k which is available only for employees, the Roth IRA is available to the average American irrespective of his age or profession.
However, the IRS regulates the amount of contributions made to the Roth IRA in each tax year just like other IRAs. The eligibility criteria for Roth IRA are far stricter than most other IRAs. Contrasting the 401k, where contribution is pretax and withdrawal is taxed, the Roth IRA is more popular because the contribution is after taxes and the withdrawal is not taxed after 59 and half years of age. The principal amount can be withdrawn anytime without fear of taxes because taxes have already been deducted.
Not everyone can qualify for Roth IRA due to the strict income limits. And, another disadvantage to Roth IRA is that upon retirement the individual would fall under the higher income tax bracket even though his withdrawals would not be taxed. While in Roth 401k since taxes would be paid upon retirement, the individual would fall under the lower income tax bracket.
So, Roth IRA works better for people who would like to spend their money after retirement and enjoy their retired life. On the other hand, 401k plan would be ideal for people who would still like to keep working just to keep themselves busy of course and not necessary for a need. In this way people falling under the 401k plan can even avoid falling in the high income tax bracket upon retirement and enjoy a low profile life with peace without getting noticed.
For people who opted for Roth IRA, it is advisable to spend more and wisely during the later years to make the maximum of the savings.
However, the IRS regulates the amount of contributions made to the Roth IRA in each tax year just like other IRAs. The eligibility criteria for Roth IRA are far stricter than most other IRAs. Contrasting the 401k, where contribution is pretax and withdrawal is taxed, the Roth IRA is more popular because the contribution is after taxes and the withdrawal is not taxed after 59 and half years of age. The principal amount can be withdrawn anytime without fear of taxes because taxes have already been deducted.
Not everyone can qualify for Roth IRA due to the strict income limits. And, another disadvantage to Roth IRA is that upon retirement the individual would fall under the higher income tax bracket even though his withdrawals would not be taxed. While in Roth 401k since taxes would be paid upon retirement, the individual would fall under the lower income tax bracket.
So, Roth IRA works better for people who would like to spend their money after retirement and enjoy their retired life. On the other hand, 401k plan would be ideal for people who would still like to keep working just to keep themselves busy of course and not necessary for a need. In this way people falling under the 401k plan can even avoid falling in the high income tax bracket upon retirement and enjoy a low profile life with peace without getting noticed.
For people who opted for Roth IRA, it is advisable to spend more and wisely during the later years to make the maximum of the savings.
