Take Help From A Financial Consultant In Case You Are Considering Retirement Planning
January 29, 2009
Many folks find all the choices that are available when it concerns retirement planning to be quite vague. When you are one of those this article is meant to explaining the differences between a 401 (k) plan and an IRA (Individual Retirement Account). There will be numerous terms you will come across during your inquiry that will be somewhat vague until you understand the terminology.
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Let’s first look at the 401 (k) plan. This is a program that provides a few benefits that are much preferable to many over other retirement plans. The first thing you might want to consider is that you can invest up to 15% of your earnings or a maximum of $15,000 per year (as of 2006). Naturally that is assuming that your employer doesn’t have limits on what you can invest. The money invested in your 401 (k) account is pre tax money so it lowers the amount of taxes you are paying out of each paycheck. Many individuals also find that because the money is taken from their checks before it arrives it is far less painless to part with. As a person who has closely followed taxes, FICA, and Fido get my money for years I can say that it is no less painful for me but some find it fine and that is a true benefit. Finally and perhaps the most fundamental thing to look at is that numerous employers will match a percentage of your part up to a certain amount each check. As an employee this is a boost to your investment that is well deserved and hard earned.
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IRAs are another creature all together. You will discover much stricter limitations on IRAs than on 401 (k) plans starting with the fact that in case your employer offers a 401 (k) you must earn very little money to qualify for the tax deductions that this particular retirement fund in general allows. The maximum annual contribution for your IRA will be $4,000 or 100% of your yearly income; whichever is bigger up until the age of 49. From the moment you’ve got to the age of 50 you can invest an additional $1,000 to your fund. The other major drawback when it comes to an IRA is the issue that you must begin taking payments at the age of 70.5 from your account. You will as well be severely punished in case you take an early withdrawal from these funds.
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Whether you choose a 401 (k) plan, a Traditional IRA, or both for your financial retirement investments, I trust you will take the time to talk about the benefits and disadvantages of each with your financial advisor before making your final decision.
Tags: retirement planning
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