How to Invest For Retirement
Saving for your future is very important. You work all your life and you want to be able to live comfortably without working and enjoy the fruits of your labor. The Best Way to do that is to invest your money in either a 401k or IRA retirement fund. These retirement funds give you a lot of flexibility and tax benefits so you can maximize your savings. However, they are very different types of funds and must be used differently.
A 401k is an option that is set up by your employer. They give you a select number of stocks and mutual funds to invest in and you can set the ratio you want to invest in. This is an optional plan. The money is taken out before taxes meaning your contribution is not taxed. However, when you retire, the money you take out is taxed so if you are in a higher income bracket than when the money went in you will have to pay more taxes than you would. But your money does grow tax free and many employers will match you contribution.
With this type of plan, you can invest up to 14,000 dollars per year, which is the sum of both your contribution and that of your employer. A 401(K) is great investment if your employer is matching your contribution. If they are, you should always invest up to the that number. But since your probably will be in a higher tax bracket when you are older, you should focus more of your investments in a roth IRA, which is tax free upon withdrawal.
IRA's are meant for individual people and can be used to invest in any you want. Unlike a 401k, it is not tied to your job so you don't have to be tied to an employer's plan. There is a 5,000 dollar limit to your investment and you can't take the money out until you are 59 1/2. However, since the money put in is already taxed, the money coming out is tax free. It's the opposite of a 401k.
You should invest in both if you can but always invest in the 401k if your employer matches your contributions. You want to think about what your tax bracket will be when you are older too. If it will be higher, you would want to consider putting more money into an IRA. Both options are good and should be used but the balance of where you put the most money depends on the type of plan your employer offers and the amount of flexibility you want.
Saving for your retirement is important as you want to be able to afford all the things you want to see and enjoy when you are older. By investing in these options, you'll be able to maximize your retirement savings. After all, your goal is to never work again so you'll want to save as much as you can. - 23200
A 401k is an option that is set up by your employer. They give you a select number of stocks and mutual funds to invest in and you can set the ratio you want to invest in. This is an optional plan. The money is taken out before taxes meaning your contribution is not taxed. However, when you retire, the money you take out is taxed so if you are in a higher income bracket than when the money went in you will have to pay more taxes than you would. But your money does grow tax free and many employers will match you contribution.
With this type of plan, you can invest up to 14,000 dollars per year, which is the sum of both your contribution and that of your employer. A 401(K) is great investment if your employer is matching your contribution. If they are, you should always invest up to the that number. But since your probably will be in a higher tax bracket when you are older, you should focus more of your investments in a roth IRA, which is tax free upon withdrawal.
IRA's are meant for individual people and can be used to invest in any you want. Unlike a 401k, it is not tied to your job so you don't have to be tied to an employer's plan. There is a 5,000 dollar limit to your investment and you can't take the money out until you are 59 1/2. However, since the money put in is already taxed, the money coming out is tax free. It's the opposite of a 401k.
You should invest in both if you can but always invest in the 401k if your employer matches your contributions. You want to think about what your tax bracket will be when you are older too. If it will be higher, you would want to consider putting more money into an IRA. Both options are good and should be used but the balance of where you put the most money depends on the type of plan your employer offers and the amount of flexibility you want.
Saving for your retirement is important as you want to be able to afford all the things you want to see and enjoy when you are older. By investing in these options, you'll be able to maximize your retirement savings. After all, your goal is to never work again so you'll want to save as much as you can. - 23200
About the Author:
Joe James gives financial advice for a living. He resides in the southwest of the United States and is a retirement specialist. You can find out more information at his website, http://www.figuringoutfinance.com.
posted by X - Men @ 1:44 AM
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