In the world of retirement there are options when picking the best plan for you; however it requires careful investment planning. There are two types IRA’s or otherwise known as individual retirement accounts you can choose from if you can’t get a 401k plan from your employer. The two types of IRA’s that are available are the roth IRA and the traditional IRA. These plans will be discussed in brief with their positive and negative sides of each plan in a comparison that will make sense to most people.
There are a few key differences between the two types of individual retirement accounts that we will discuss first. The first major difference is that the roth IRA doesn’t give you a tax break when you contribute. However, it is much better for when you are actually retiring. Instead, it gives you no taxes when you withdraw the funds upon your retirement. This is a great thing because then all the money you put in is absolutely yours, with no strings attached.
The traditional IRA on the other hand has age restrictions, mandatory withdrawals, and an age limit where you have to withdraw the money. Unlike the traditional version, the roth IRA has no age limits; thus you can let your money sit and let your children or loved ones benefit from it when you pass on. You can also make contributions up until the day you are no longer alive. Lastly, the traditional IRA makes you stop contributing by the age of 70 ½.
The only downfall to the roth IRA is there is an income limit that you must fall under. It acts much like the income guidelines for government assistance, but not as strict. The income guidelines for being able to use the roth IRA is $125,000 for singles and if you’re married filing jointly it only goes up to $183,000 a year. Both of the versions of the IRA’s only allow contributions up to 5,000 or if you reach the age of 50 then you can contribute 6,000 a year.
Why would I want to change my 401K to an IRA?
Many people choose to roll it over when they are closer to retirement to avoid taxes when they withdraw the money. They do this not knowing that if they chose the right 401k plan that they would not be taxed anyway. However, it is a good plan if you simply do not have access to the 401k anymore and you do not want to spend the money before you retire.
It is also good if you have other options for your retirement funds such as pensions that you can live on. If you don’t mind your immediate family, that is your beneficiaries, to benefit from your hard earned work and money? You might feel that one of them deserves a break, which would be good for you and them. Learn about the best IRA investment options and understand the advantages of planning for retirement before signing up. It will only benefit you in the long run.