Which Retirement Savings Account Is Best?

In this day and age, planning for your retirement is extremely important.  In a society where savings account interest rates are at an all time low and the return on investments is extremely low, investors must have a retirement plan strategy that will make them the money they need to live a comfortable life in their later years.  While there are several investment vehicles available to investors, more and more individuals are choosing less risky accounts and investment strategies to guarantee they will have a nest egg built by the time they are ready to exit the workforce.  While there is no set answer in which retirement savings account is best for every investor, there are advantages and disadvantages for each plan.  Knowing these benefits and negative factors will give you the knowledge you need to make an informed decision when weighing the pros of cons of retirement plans.

The 401k Retirement Plan

401k retirement plans are funded through pretax payroll deductions that are taken directly from an employees check.  While there are several advantages to this form of retirement planning, it is not available for everyone as your employer must offer it.  While there are many other ways to invest your after tax dollars, many choose 401k plans when their companies offer employer match benefits.  These benefits are essentially free money and stipulate that your employer will match a certain percentage of their employee’s contribution.  Because of the tax benefits and matching benefits, many employed individuals choose the 401k retirement plan.

Roth Ira Vs. Traditional Ira

IRAs have become an increasingly popular retirement savings accounts.  Because many companies cannot afford to keep 401k benefits programs alive, more and more investors are turning to either the Roth or Traditional IRA to save for their retirement.  Understanding the advantages of each will give you a greater knowledge of where to invest.

Traditional IRAs are tax-deductible contributions that can be withdrawn penalty-free at age 59 1/2.  Because there is no income restriction on the Traditional IRA, this is the form many self-employed entrepreneurs choose when investing for retirement.  While the traditional fund has its benefits, the Roth IRA has become extremely popular in investors making less than $95,000 per year.  While contributions are not tax deductible, all earning and principal are 100% tax-free if the rules and regulations are followed.  Deciding which is best for you may be difficult.  While you can deduct contributions annually on a traditional IRA, you may be forced to pay taxes at the time of distribution.  This can be avoided with a Roth IRA.

Choosing your retirement investment vehicle must be a financial decision that is discussed with your financial adviser.  With the proper planning you can expect to live a comfortable and happy retirement.