[ad_1]
Most people understand the virtues of a 401 (k) when it comes to saving for retirement. Yet few people know that another employer-sponsored plan could work as well, if not better.
Like a traditional 401 (k), a Roth 401 (k) allows you to contribute up to $ 19,000 per year through automatic payroll deductions and can carry the big bonus of an employer match if your company proposes it.
One of the main differences lies in the fact that contributions to a Roth 401 (k) are immediately taxed, so that retired withdrawals are tax-free (provided you are 59 years of age or older). more and have owned this account for at least five years). .
For workers who will end up in a higher or identical tax bracket, like Generation Y, in particular, it's a big advantage over a traditional 401 (k), where contributions are not taxed until the money is not paid. took of. At this point, the money taken at retirement is taxed at the rate of your ordinary income.
Thus, the Roth 401 (k) schemes look like the better known Roth IRAs, except that there is no income limit to participate in a Roth 401 (k) – and that the maximum annual contribution for workers under 50 is greater than three. times higher.
In addition to the $ 19,000 a year you can save in a Roth 401 (k), there is also a $ 6,000 catch-up contribution if you are over 50. With a Roth IRA, you can contribute $ 6,000, with an additional $ 1,000 if you are 50 or older.
On the other hand, the IRS asks you to start withdrawing withdrawals from your Roth 401 (k) at age 70 and a half. A Roth IRA does not have this requirement.
Currently, only about 11% of employees contribute to a Roth 401 (k), a 3% increase over the last five years, although about 7 out of 10 companies now offer a Roth option, according to Fidelity Investments, the largest provider of 401 (k) plans.
"It's important that you contribute to employer-sponsored plans, whether you're Roth or not," said Meghan Murphy, vice-president of Fidelity. (Financial advisors generally recommend contributing at least enough to accumulate the employer equivalent.)
Of course, it is not necessary that it be one or the other. Many advisors recommend taking advantage of both types of retirement savings plans, if possible.
More Invest in You:
Your five worst consumption habits and how to change them
How to reach the 7 stages of financial freedom
Identity thieves target children
Thus, you can develop a tax-efficient strategy for your golden years: ie, Start by exploiting accounts allowing for tax-free withdrawals – such as Roth accounts and brokerage accounts, which are taxable only when you sell appreciated badets to distribute money. .
"It's helpful to have several different categories," said Kristen Moosmiller, chartered financial planner for NorthAvenue Financial Advocates in Columbus, Ohio.
"With a Roth, you build not only an after-tax basket, but also tax-free growth over time, "she added.
Without such a strategy, the tax bill can be an unpleasant surprise in retirement. According to a survey by the Nationwide Retirement Institute, nearly half of recent retirees would like to have better planned their tax management in retirement. One in four claims to have paid thousands of dollars more in taxes when he was retired than he was expecting.
To mitigate the shock, ask an advisor to determine the best way to grow your capital, then determine how many sources to draw upon when you retire, to maximize your income and minimize your tax bill.
Source link
