The disadvantages of 401k plan usage are few. But, if you have the option to choose, there are several things to consider and be aware of. Here are a few things that you should know about IRAs, 401Ks and Roth plans. The information should help you choose which plan is right for you.
Do you want to pay taxes now or after you retire?
Contributions to all traditional “non-Roth” plans are tax deductible or reduce your taxable income for the year that the contribution is made. Distributions, on the other hand, are taxed as regular income. In other words, after you retire, when you begin to take money out of the account, it will be taxed as regular income.
Many people are in lower income tax brackets after retirement. People aged 65 and over get to take additional income tax deductions. So, if your earnings are high and you expect to be in a lower income tax bracket after retirement, the traditional plans may be for you.
One of the disadvantages of 401k plan and traditional IRA usage for some people is that they continue to pay income taxes, after retirement. The wealthier you are after retirement, the more advantageous the Roth plans.
Do you want to begin taking distributions by the age of 70 ½?
People are working longer and living longer. They are healthier and more active. It is not unusual today to see people working past the age of 70.
One of the disadvantages of 401k plan and traditional IRAs is that account holders must begin taking regular distributions by the age of 70 ½. If they are still working, the distributions add to their annual income.
So, they often pay more taxes than they want to. If they don’t really “need” the money, they have to decide what to do with it; put it in a savings account, find another investment, etc.
There’s really no way to know how you will feel at the age of 70, but with Roth plans, there are no required distributions. You can save it for later life or leave it to your beneficiaries.
How much do you want to contribute on an annual basis?
There are maximum annual contributions to any tax-advantaged retirement account, regardless of the type. But, the maximum annual contributions to 401Ks are higher than the maxes for traditional accounts.
There is now a Roth-401k and a Roth-IRA, but the maximum annual contributions are the same, whether the account is a Roth or a traditional type.
Any disadvantages of 401k plan usage may be outweighed by the higher maximum annual contribution and the employer matched contributions. If your earnings are high and you want to save more, 401ks are the way to go.
Does your account provider limit your investment choices?
Now, that you have learned about the advantages and disadvantages of 401k plan usage, you might want to investigate all of your investment options.
Some account providers limit the types of things that you can invest in.
With today’s markets, the average number of years that people are living after retirement and the inflation rate, you cannot afford those limits.
To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.
This is the best investment strategy considering today’s economic environment for building a secure financial future.
Isn’t your financial future worth it?
Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.
Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website http://higher-ira-returns.com.
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