Do you have extra cash flow every month, no high-interest debt, and a strong emergency cash cushion? Then you’re probably ready to start building your wealth more actively! But where should you start? 401(K) or Roth IRA? Watch the full episode here: Read Money with Katie: Follow Money with Katie! Instagram - Twitter - TikTok - Subscribe to Morning Brew Sign up for free today: Follow The Brew! Instagram - Twitter - TikTok - #moneywithkatie #personalfinance #investing...(read more)
LEARN MORE ABOUT: IRA Accounts
INVESTING IN A GOLD IRA: Gold IRA Account
INVESTING IN A SILVER IRA: Silver IRA Account
REVEALED: Best Gold Backed IRA
Which Takes Priority: 401(k) or Roth IRA? When it comes to saving for retirement, many individuals find themselves torn between contributing to a traditional 401(k) or a Roth Individual retirement account (IRA). Both options offer unique advantages, making the decision even more challenging. However, understanding the differences and potential benefits of each can help you make an informed choice that aligns with your financial goals. First, let’s delve into the basics of these retirement savings plans. A 401(k) is an employer-sponsored retirement account, while a Roth IRA is an individual account that you can contribute to on your own. Both plans offer tax advantages, but they differ in terms of when the taxes are paid. A 401(k) is funded with pre-tax contributions. This means that the money you contribute to your 401(k) is deducted from your taxable income in the year it was earned, resulting in immediate tax benefits. However, when you withdraw the funds in retirement, you will pay taxes on the accumulated amount, including any earnings. On the other hand, a Roth IRA is funded with after-tax dollars. This means that the contributions you make to a Roth IRA are already taxed in the year you earn the money. However, when you withdraw the funds in retirement, both your original contributions and any earnings are tax-free, as long as you meet certain criteria. So, which plan should you prioritize? The answer depends on several factors, including your income, tax bracket, and future financial goals. Here are some key considerations: 1. Employer Matching: If your employer offers a matching contribution to your 401(k), it's usually wise to prioritize this option. Employer matches are essentially free money, providing an instant return on your investment. 2. Tax Bracket: Consider your current and expected tax bracket in retirement. If you are in a higher tax bracket now and expect to be in a lower one during retirement, a traditional 401(k) may be more advantageous. Conversely, if you are in a lower tax bracket now and anticipate being in a higher one in the future, a Roth IRA could be more beneficial. 3. Investment Options: Evaluate the investment options and fees associated with your employer's 401(k) plan. Some plans have limited investment choices and higher fees, which may make a Roth IRA a more attractive alternative. 4. Future Tax Rates: Consider the possibility of future tax rate changes. While no one can accurately predict tax rate fluctuations, it is worth considering diversifying your income sources to mitigate potential tax liability. By having both a 401(k) and a Roth IRA, you can potentially tap into the advantages of both plans in retirement. 5. Contribution Limits: Be aware of contribution limits imposed on both plans. As of 2021, the maximum annual contribution for a 401(k) is $19,500, while a Roth IRA has a maximum annual contribution of $6,000 ($7,000 if you are aged 50 or older). If you have the means, you may consider maxing out both plans if allowed. It is important to note that there are income limitations for Roth IRA contributions. If your income exceeds a certain threshold, you may not be eligible to contribute directly to a Roth IRA. However, there are ways to work around this, such as utilizing a backdoor Roth IRA conversion. In conclusion, choosing between a 401(k) and a Roth IRA requires careful consideration of your specific circumstances. While employer matches and tax brackets may lean in favor of a certain plan, diversification and long-term tax planning should also factor into your decision. Ultimately, consulting with a financial advisor can help you navigate the complexities and determine the best path forward to secure a comfortable retirement. https://inflationprotection.org/is-401k-or-roth-ira-the-priority/?feed_id=110272&_unique_id=6494c3da8ad34 #Inflation #Retirement #GoldIRA #Wealth #Investing #401k #investing #moneywithkatie #morningbrew #RothIRA #TraditionalIRA #401k #investing #moneywithkatie #morningbrew #RothIRA
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