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Tag: 401K plans

What Is The Difference Between A Roth IRA And 401K Retirement Plans?

Saving for retirement is usually something not on a lot of workers' minds until it starts getting close. Starting early is essential and the numerous retirement investment accounts out there can often confuse the average consumer.

A Roth IRA is a bit different than a 401K in that it is not an employer sponsored program and it involves investing in the stock market as opposed to just saving money and earning interest income on it. To find out more information regarding the 401k compliance, visit CXC Solutions.

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If you have both of these accounts or are deciding to use one or the other or both for retirement, there are benefits and drawbacks to both. Assuming all else is equal, it may be better to put most of your money into your 401K, especially if your employer will match contributions. Usually employers require a certain amount to be contributed by the employee before it will start matching contributions. 

A drawback to the 401K is that money contributed is not yet taxed and will be once it is withdrawn in retirement. Based on the tax bracket an individual is in when they retire, this could be a significant chunk of the account. This is opposed to a Roth IRA in which dollars invested have already been taxed and as long as the terms of the account are followed, the money can be withdrawn without being taxed again on long term capital gains.

Both of these accounts have great tax advantages and both are suitable for retirement. When deciding which to contribute more too or which to make a priority, look at your employer's contribution matching plan as well as rates of return on Roth IRA's.