IRA Alternatives
In this age of shrinking pensions and disappearing defined benefit plans, it has never been more important for workers to take care of their own retirement needs. Fortunately modern workers have access to a number of retirement programs their parents and grandparents did not enjoy, from traditional and Roth IRA accounts to employer-sponsored 401k plans.
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Roth IRA
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A Roth IRA can be an excellent tool for retirement savings, especially for younger workers with decades to go before they stop working. That is because retired workers can withdrawal money from their Roth accounts without paying any federal taxes. That makes the Roth IRA a particularly good choice for those who expect tax rates to rise in the future, and those who expect to retire at the same or a higher tax bracket than they were in when they were working.
Traditional IRA
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If you are eligible for a traditional IRA, you can take a tax deduction for the contribution when you prepare your return. The fact that you get a tax break for the money you put in can make the traditional IRA even more valuable, and give you a strong incentive to put money aside for the future. The up front tax deduction makes the traditional IRA a good choice for workers who expect to be in a lower tax bracket when they retire.
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401k Plans
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A workplace retirement plan like a 401k provide an interesting alternative to an IRA, and additional tax savings as well. When you put money into a 401k plan, the money you put in is deducted from your taxable income, and that lowers your tax withholding immediately. That means you might be able to put more into your 401k than you think without appreciably shrinking your paycheck.
Personal Savings
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Saving money for retirement is essential, but it is important not to lose sight of your personal savings. The money you put into a retirement account, whether that account is an IRA or a 401k, has one distinct disadvantage. You cannot take that money out until you reach age 59-and-a-half without making special accommodations or paying a penalty. If you plan to retire early, or if you are forced to leave the workforce before your normal retirement age, you will need some personal savings to tide you over and give you the cash you need until you can start tapping those retirement funds penalty free.
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References
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