Should I Continue to Put Money Into My Roth IRA?

Roth Tax Advantages

Roth IRAs have attractive tax advantages, according to retirement consultant Denise Appleby's article for Investopedia. Roth IRA distributions are tax- and penalty-free, because you pay taxes on contributions before withdrawal. Contributions should be made annually, because your tax bracket might be lower than when you retire.

Roth IRA or 401k

A Roth IRA offers tax advantages, but if your employer matches 401k contributions, a 401k plan might offer more reward at the end. The maximum contribution for a Roth IRA is $5,000 annually, opposed to the $16,500 annual contribution. For high-income individuals, a 401k might be a wiser way to build extra savings. Say you make $75,000 annually and contribute 5 percent of your earnings. If your employer matches your contribution, then the annual 401k contribution is $7,500.

Bottom Line

Retirement planning must be a priority. A Roth IRA and a 401k are wise investment vehicles, but one might be more suitable for you then the other. A Roth IRA offers tax advantages, which can benefit beginning investors. However, a 401k has a higher contribution limit and employer contributions.

References

• "Forbes Investopedia": Roth Or Traditional IRA ... Which Is The Better Choice?
• "Forbes Investopedia": New Retirement Plan Limits For 2008
• "Forbes Investopedia": Which Retirement Plan Is Best?