| Retirement planning is more important than ever with | | | | money that you can do without for the foreseeable |
| the current downturn in the economy. There are | | | | future. |
| many ways to plan for retirement and sifting thought | | | | The tax-deferred 401 (k) plan should be a part of |
| all the option can be confusing. However, the way to | | | | everyone's retirement planning portfolio. |
| financial freedom and a successful retirement isn't | | | | IRA (Individual Retirement Account) |
| really that complicated. The main thing to remember | | | | An IRA, or an Individual Retirement Account, also |
| is that you should start saving and investing as much | | | | provides either a tax-deferred, though a traditional |
| money as you can and as early in your life as you | | | | IRA, or tax-free, though a Roth IRA, way of saving |
| can, to give your money the time to grow over time. | | | | for retirement. |
| Time and sound money management are the keys | | | | A traditional IRA allows you a maximum |
| to create wealth for your golden years to come. | | | | tax-deductible contribution of up to $4,000 a year, or |
| This article aims to explain the differences between a | | | | 100% of your annual income, whichever is greater |
| 401(k) plan and an IRA (Individual Retirement | | | | until the age of 49. If you are over 49, you are |
| Account). These are two of the most popular | | | | allowed to contribute an extra $1,000. A Roth IRA |
| retirement savings plans available that makes | | | | allows a non tax-deductible contribution but offers |
| retirement planning easy, even for people without | | | | greater flexibility than a traditional IRA. For the first |
| any financial sense. | | | | five years, money contributed into a Roth IRA can |
| 401(k) Plan | | | | be withdrawn without being subjected to a penalty |
| What exactly is a 401 (k) plan? A 401k plan is an | | | | or tax, which has already been paid, but the money |
| employee-funded and company-sponsored retirement | | | | earned in the account will be taxed as original income. |
| plan. Some companies also offer to match the | | | | After five years, both contributions and earnings in |
| employees' annual contribution. | | | | the account can be withdrawn without penalty or |
| A 401(k) plan is an excellent retirement planning | | | | taxation. |
| option because taxes on the contribution and any | | | | There are limitations to a Roth IRA, however. The |
| return on investment are deferred until you start to | | | | amount you can contribute to the retirement plan |
| take money out from the plan when you reach the | | | | may be limited or not allowed depending on you |
| permissible age to do so without penalties. Taking | | | | income. |
| part in a 401 (k) plan saves you money on income | | | | You are not limited to picking either the 401 (k) or |
| taxes and gives your money the power to make | | | | the IRA. You can have both as long as you work for |
| more money tax deferred. Over time, the return | | | | a company that offers a 401(k) plan and you earn an |
| on that extra money invested can produce | | | | income. |
| thousands of more dollars toward your retirement | | | | Regardless of whether you choose a 401 (k) plan, a |
| fund. | | | | traditional IRA or Roth IRA, or both as your financial |
| To take full advantage of this retirement plan, you | | | | planning for retirement, the key to successfully |
| should consider contributing the maximum allowed by | | | | meeting your retirement needs is to plan for you |
| law, if your situation allows it. The current maximum | | | | retirement as early as possible and save as much |
| contribution you can make to your 401 (k) is limited | | | | money as you can afford and as quickly as you can |
| to 10% of your salary. If you can't afford to | | | | to let time work to your advantage and to grow |
| contribute the maximum 10%, try to contribute at | | | | from your investments. By the time you retire, you |
| least up to the amount that your employer will | | | | will need to be able to cover the cost of living, in |
| match. Any matching contributions made by your | | | | addition to any expected medical expenses. This is |
| employer are not counted toward the 10% limit. | | | | especially important in today's age because our life |
| It should be noted that there are penalties, in addition | | | | expectancy is going to continue to increase, so you |
| to paying the regular taxes on that money, for | | | | want as much money as possible available when the |
| taking money out of the plan before the allowed | | | | time comes for your retirement. |
| age, so be sure that the money you put aside is | | | | |