Retirement is not something you want to leave to chance. You certainly don’t want to depend on the government to keep Social Security afloat do you? You need to begin planning for your retirement now. You have a few choices when it comes to saving for retirement. You can choose between a 401k or an IRA. The rest of this article will discuss the highlights of each retirement account.
401k basics
401ks are typically provided by an employer. Many employers have qualifications that you have to meet before you can contribute to one. You may have to be a full time employee instead of a part time one. You may have had to work there for a certain amount of years. Basically this account is seen as a benefit that the company provides. The way a 401k works is that you pay through tax deferred payroll deductions (come out of your paycheck). Many employers even match the contributions. There is a penalty if you withdraw before age 59 ½.
A 401k is different from an IRA in that it has higher contribution limits. Now let’s discuss some points about IRA accounts
IRA basics
There are two types of IRAs – Traditional and Roth.
Here are the basics facts about each one.
Traditional – anyone who works or receives alimony can open one. not tied to an employer
You can claim a tax deduction for contributing to traditional IRA
Contributions must stop after age 70 ½
Roth IRA
Funds must be held for 5 years before a withdrawal is made.
There is a limit to how much your income can be to be able to contribute.
Contributions can be made no matter how old you are.
Retirement planning is serious business. It is highly advised to seek competent advisors when you you are planning for your retirement.
For more information go to the IRAs website and consult Publication 590 for information about IRAs. For more information about 401ks consult Publications 525, 412, and 413.
Andrea is the Chief Chick of Smart Money Chicks. After filing BK twice (once because she panicked, second time because the pro messed the first time up), she realized that it all could have been avoided if she understood more about how her Finances worked and the options available. At that point, she wanted to help as many as she could never make the same mistakes again. Our Promise is that all the content you read on here is created or edited by Andrea