which is better, 401K or IRA? is it good to have both?

Question

i have 401K but i want to save more for my retirement. i'm thinking of getting an IRA too. but i don't have much idea how it works, like how much i should contribute--i mean, the minimum. does it also work like 401K?

Answer 1

Having 401k and an IRA is a good idea to have. When your contribute to your 401k, your employer matches a percentage (say 3%) of that contribution.

Having an IRA is similar to a 401(k). You get to pick your own investments (though its better to work with an investment adviser or dealer to help you find the suitable investments). Your investments grow tax-deferred. The only difference is that the employer that offers 401(k) won't contribute to your IRA.

There are two types of IRAs you should know about. One is called Traditional IRA and the other is called a Roth IRA. A Traditional IRA is where your contributions may or may not be tax-deductible. This totally depends on your Adjusted Gross Income, Filing Status, and whether you are currently covered by a retirement plan at work (which you are currently do). When you withdraw money from the Traditional IRA, you may pay partial or full taxes on them. You also must take the minimum distribution requirement beginning at age 70 1/2.

In Roth IRAs, none of your contributions are tax-deductible, so all your withdrawals after age 59 1/2 can be tax-free. There is no minimum distribution requirement, so you can hold the assets in there for the rest of your life and past it on to your spouse or kids when you die.

Answer 2

It is good to have a 401k no matter what if your employer offers one. If you are already contributing enough to get the match and you can afford to save more, it is good to open a Roth IRA. Here's why:

1. Tax treatment diversification. You already have a tax deferred account (401k); a Roth IRA is a tax exempt account. You'll NEVER pay taxes on funds in an IRA once you put them in, not even when you take them out in retirement (unlike a 401k or traditional IRA).

2. More investment options. You can open your IRA anywhere--a bank, an online brokerage, a mutual fund company, etc. You can put any investment vehicle you want in your IRA (even real estate now). With your 401k, you're limited to the few funds your employer picked out (usually with really high fees).

3. Flexibility. You can always remove contributions you made to a Roth IRA tax and penalty free. So you have nothing to lose and don't have to fear tying that money up for 4 decades. Plus you can remove contributions AND earnings tax and penalty free if you are usign the money for your first home, college tuition, disability, and several other specific circumstances.

Happy Investing!

Answer 3

I have both a 401k and a Roth IRA.

One theory is that you should "max out the match" on the 401k first then put up to $4000 in a Roth. For example, if your company matches 50% of the first 6% you put in, you should put in 6%. That way you get a free 3% towards your retirement. Then put $4000 in to a Roth IRA. If you still want to invest more after that, increase your 401k contribution.

Answer 4

If your employer matches your contributions to your 401K, put as much as you can afford into that, at least up to the matching limit. You can always just add more to your 401K. You might have more control over how the money is invested in your own IRA, depending on the details of your 401K plan.

Answer 5

If you make over a certain amount, you cannot open a Roth IRA. Check with the irs.gov on that. For most people it is easy enough to just max out the 401k. Then if you really want to save more, open the Roth (if you make less than the max allowed).

Answer 6

while you're below 40 9, the max which you would be able to put in an IRA the each year contribution restrict is $4000. 50 and over is $4500. it rather is something time-commemorated as a "seize up" contribution. For you business enterprise plan the max greenback volume is $15,500. those are separate plans, one is a business enterprise provided plan and the different attached with the help of you. don't be attentive to how historic you would be besides the fact that if...surprising activity! Pay your self first and the coolest purchase else comes after! you will have the skill to be in great variety with the help of the factor you're equipped to retire! do merely no longer supply up on the contributions.