Langsung ke konten utama

Retirement savings tips: 401(k) vs IRA

As the end of the year approaches and investors begin to take stock of their savings, one consideration they may want to take into account is how they should allocate money across 401(k) and IRA plans.

In a traditional, employer-sponsored 401(k) plan, employees can contribute tax-deferred money that is generally matched by a company up to a certain percentage. Traditional IRAs are accounts individuals set up independently, where earnings grow tax-free until they are withdrawn in retirement. For a Roth IRA, contributions are taxed first and then withdrawn tax-free, and a Rollover IRA allows individuals to transfer money over from employer-sponsored plans.

Here are some tips to help you navigate the retirement planning process.

Contribution levels

The maximum amount an individual can contribute to a 401(k) plan is significantly higher than what is allowed for an IRA. Beginning next year, the Internal Revenue Service (IRS) will increase the contribution threshold for 401(k) plans by another $500 to $18,500 per year. The maximum allowable, cumulative contribution per year across both traditional and Roth IRA plans is $5,500 or $6,500 for those ages 50 and older.

Uses

“Most of the time people work for an employer and obviously the easiest way to invest is to make it automatic … [that’s also] typically the most advantageous,” David Hays, president of Comprehensive Financial Consultants, told FOX Business.

IRAs can be useful for a variety of purposes, however, including higher education expenses for yourself or your children or a down payment for a first-time homebuyer. If funds are withdrawn for these purposes when an investor is under the age of 59.5, they can generally be exempt from the 10% distribution penalty.

401(k) plans don’t provide those options, but Hays said the plans do offer loans for up to 50% of the vested account balance, or $50,000, whichever is less. Not all plans include this allowance.

Investment options and fees

While a traditional 401(k) usually offers limited investment options, IRA choices tend to be limitless, offering investors more flexibility to curate a unique portfolio.

In terms of fees, Hays said IRAs, which tend to be more on the retail side, sometimes comes with higher fees. With 401(k) plans, big companies can offer really low, competitive fees.

Withdrawal

For a 401(k), if you are no longer working with an employer, you can generally withdraw funds if you are age 59.5 or older. In some cases, you only need to be over the age of 55. If you withdraw early, you will pay income taxes and a 10% penalty.

On the other hand, you can rollover your 401(k) savings into an IRA plan, should you choose to continue stashing cash away.

For IRA plans, the age 59.5 rule applies, and early withdrawal would also result in a 10% penalty on top of income taxes.

Postingan populer dari blog ini

Find investment Zen: When to buy, hold and sell

There is a wealth of ways to invest your money, but let’s face it: you probably don’t have endless time to figure them all out. And with time at a premium, using energy to keep abreast of the ins and outs of your investment portfolio can seem impossible. Although Singaporeans are on average earning more each year, the global market hasn’t been as successful recently — and that’s enough to give anyone pause before approaching today’s complex investment landscape. One way to get to grips with the investment climate is to take advantage of a smart investment tool, which can  help to identify investment opportunities . Standard Chartered Bank now offers Personalized Investment Ideas (PII), the latest tool to give investors the info they need to grow their wealth. Thanks to technological advancements like this, you can invest wisely, and without giving up your valuable time. When it comes to your investments, you have three potential options: Buy Taking risks with y...

5 Quick Steps to Improve Your Finances in 2018

Losing weight and improving one’s finances are almost always at the top of most people’s lists of New Year’s resolutions. It makes sense to look out for your physical and financial health so you can enjoy life to the fullest. Following through on your resolutions is usually the tough part — it takes changes in certain behaviors, discipline and time to experience and maintain the results. This is as true for financial planning as it is for losing weight. If improving your finances is one of your New Year’s resolutions, here are five steps you can take starting Jan. 1: Immediately Pay Down Holiday Bills and Credit Cards. Many people splurge on holiday gifts, parties and travel in December, but the bills will come due in January. Resolve to pay down those debts quickly to avoid large interest charges on your credit cards. Set a goal to pay off the total amount on one card within a few months, if not sooner. If you or your spouse expects a bonus check from your emplo...

How to Invest to Always Consistent Returns?

One of the major demands that the infrastructure bankers and advisors come across from the prospective clients is an investment policy with zero risks. Most people look for such an investment option and still reap high interest - which is practically an impossible demand in the first place. Most individuals who are retired or would soon be retired have such queries, and some of the top options are the money market funds, certificates of deposit and much more. The first and the foremost thing to be kept in mind when you are going for investment is that do not expect unrealistically high returns. No type of investment plan can bring home such high returns anyway. Dividend paying stocks There are many different companies which yield dividend paying stocks that are way higher than many risk free investments. However, at the same time, they help you participate in any capital gain. If you are trying to opt for risk free options with consistent returns, this may appear poten...