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Calculating Retirement Contributions Between 401K & Roth IRA


So you know how much you want to contribute to retirement. But how do you split it between different retirement vehicles to get there? Today I'm sharing how we make these calculations to determine our annual retirement contribution amount. Budget Template: Budget Breakdown Course: Budgeting For Baby course: Budgeting For Baby workbook: ...(read more)


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When it comes to retirement planning, one of the most important decisions you can make is how to allocate your contributions between a 401K and a Roth IRA. Both of these retirement accounts offer tax advantages and can help you reach your retirement goals. However, it is important to understand the differences between them in order to make the best decision for your individual situation. A 401K is a retirement savings plan offered by employers. It allows you to make pre-tax contributions to an account that grows tax-deferred. This means that you do not pay taxes on the contributions or the earnings until you withdraw the money in retirement. Employers may also offer matching contributions, which is essentially free money. A Roth IRA is an individual retirement account that allows you to make after-tax contributions. This means that you pay taxes on the contributions now, but the earnings will grow tax-free. Additionally, you can withdraw the contributions at any time without penalty. When it comes to deciding how much to contribute to each account, there are a few things to consider. First, if your employer offers matching contributions for your 401K, you should contribute enough to take advantage of the full match. This is essentially free money, so it’s worth taking advantage of. If you have additional money to contribute, you should consider your individual tax situation. If you think your tax rate will be higher in retirement, then you may want to contribute more to a Roth IRA, since you’ll pay taxes on the contributions at your current rate. On the other hand, if you think your tax rate will be lower in retirement, then you may want to contribute more to a 401K, since you’ll pay taxes on the earnings at your lower rate. Finally, you should also consider your risk tolerance and time horizon. A Roth IRA may be more suitable for younger investors who have a longer time horizon and are willing to take on more risk. On the other hand, a 401K may be more suitable for older investors who have a shorter time horizon and are looking for more stability. Ultimately, the decision of how much to contribute to a 401K and a Roth IRA is a personal one. It’s important to consider your individual tax situation, risk tolerance, and time horizon in order to make the best decision for your retirement goals. https://inflationprotection.org/calculating-retirement-contributions-between-401k-roth-ira/?feed_id=74705&_unique_id=63fe9f035facd #Inflation #Retirement #GoldIRA #Wealth #Investing #401k #BabyStep4 #budget #budgeting #calculations #contributions #daveramsey #invest #investing #limits #marissalyda #max #Retirement #RothIRA #strategies #thebudgetingwife #RothIRA #401k #BabyStep4 #budget #budgeting #calculations #contributions #daveramsey #invest #investing #limits #marissalyda #max #Retirement #RothIRA #strategies #thebudgetingwife
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