Thursday, 14 July 2016
Retirement planning is a vital component of setting yourself up for a comfortable life after you finish working.
The earlier you start saving, the better off you will be, thanks in part to the power of compound interest—something Albert Einstein supposedly once referred to as the eighth wonder of the world.
Deciding on a retirement plan to choose, whether it's a 401(k), traditional IRA, or Roth IRA, can be a daunting and confusing proposition. Here, we break down the pros and cons for each option.
401(k) plans are provided by an employer to an employee. Not all employers offer 401(k) plans, but those that do make deductions from an employee's paycheck to deposit into the plan as savings for retirement. You are allowed to start taking money out of your 401(k) without penalty when you are 70½ years old. According to IRS stipulations, you must start your retirement distribution by April of the year that you turn 70½.
Roth IRAs, which are individual retirement accounts, are a very popular retirement savings tool. Established in 1997 and named after the late Delaware State Senator William V. Roth, Roth IRAs are funds that hold after-tax contributions. You can withdraw money after you turn 59 ½ years old.
A traditional IRA is a savings plan that allows you to contribute money, either pre-tax or after-tax. Like the Roth IRA, you can make withdrawals after you turn 59 ½ years old.
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There are many ways to save for retirement, and the best choice will depend on your specific employment situation. Here are some methods to consider.
Investing early can pay off in a big way when you're ready to retire. Check out the advantages to early investment and learn how to do it.