The Roth IRA is an individual Retirement Account that allows investment of post tax income so that they can grow tax free, the page, roth-ira.org would tell you more about this. On the other hand a 401k allows investment of pretax income which can then grow tax deferred. The two have certain advantages over each other.
401k:
It emerged in early 80s as an alternative to pensions. It is open to all, irrespective of their income, but its characteristics make it more favorable to the higher income individuals. The best feature about this individual retirement account is its high annual contribution limit of $16,500; when compared to the $5000 for the other IRAS. However a drawback associated with this retirement plan is that the choice of funds is under the control of the employer. The other features of a 401k are the same as those of a traditional IRA.As already mentioned, contributions are not taxed and instead the funds are taxed at the time of withdrawal. These withdrawals are made mandatory after the age of 70 and a half.
Roth IRA:
It was framed much later in the late 90s and it offers features which prove to be helpful to an average American. In fact this IRA is available only to a select group of individuals whose annual income is restricted to $100,000. This is more flexible in comparison to other IRAs and contributions are not tax deductible but withdrawals are tax free. Moreover, withdrawals are voluntary; one may even leave his account untouched for his next generation. Contribution however is limited to $5000 a month but a senior citizen is allowed to contribute $1000 extra. Qualified withdrawals can be made at any time without penalties.
Thus, to allow the investor to enjoy the benefits of both the IRAs, the US government has legalized participation in both. That way, not only is the investor safe in case of an increase in tax rates in the future, but at the same time he can save more funds, by investing his income before it is taxed.
Similar Posts:
- Reasons to Avoid Bankruptcy
- The Absolutely Free Instant Credit Report Online – Is It a Myth?
- France Set To Increase Tax On High Earners
- Over 50s can`t afford to enjoy retirement because of debts
- 40% of people approaching retirement `saddled with debt`