Choosing The Right 401k Plan For Your Future

Just what is a 401k plan? It is a type of program that has been set up by the government to encourage people to save money for when they retire

. This helps take some of the pressure off of Social Security, a program that is already in trouble due to the retirement of those in the baby boom generation. This plan encourages employers to make matching contributions to employee accounts; it also provides tax breaks with regard to the earnings that accrue.

The most desirable factor for current 401k contributors is the deferment of the tax burden. A 401k is tax deferred until it is withdrawn. The premise in play here is that when people withdraw funds from their 401k accounts they will probably be retired and their tax bracket will be lower than it was at the time when they earned the money. For some people, getting taxed when withdrawing money from their 401k will not be financially beneficial, and will resulted in them selecting Roth 401k plans.

An alternative was created to the traditional 401k plan, known as the Roth plan. This is accomplished by taxpayers putting in contributions and paying taxes on income they made in that year, which is saying that the funds are made up of after-tax dollars. Because taxes have already been paid on this money, it does not have to be taxed again. When the funds are accessed in the future, there will be no need to pay taxes on the money. This is beneficial for those who believe that when they retire and need to withdraw the funds, they will be in a higher tax bracket. For these people, it would cost less to pay their taxes now.

A Roth 401k is not designed for those presently earning a substantial income and who anticipate retiring at a lower tax bracket. Other factors should be considered too, such as the fact that money in a Roth account cannot be intermingled with funds in a regular 401k account. Also, a lot of employers don't want to offer Roth plans because of the extra administration needed to have the traditional 401k retirement plans along with the Roth plans.

So you have to decide between the Roth and the 401k. Sometimes deciding which option to choose can be difficult, particularly if you don't really know how much you will be earning later in life. As is the case with any situation involving your investments, check with a financial advisor who is very familiar with the various 401k rules to find out what they suggest for your particular situation.

by: Julia C. McBride

POST COMMENT

Edi 210 Billing And The Future Of The Economy The Future of Video Content Convergence: Consumer engagement opportunities in multi-platform video and over-the-top TV Water Jet Cutting The Future Is Hear How To Unlock The Financial Opportunities Revealed In Futures Trading Fuel Injection Pump Test Stand Products, Present Situation And Future Trends Hdmi Adapter: The Future Is Wireless Future possibilities of having your own still Guess The Future Direction Of Ceramic Metal Products Mechanical Part Manufacturers: The Past & Future Of The Mechanical Industry Know The Secret Behind Futures Trading Building Societies – What does the future hold Saving Money for Future Worldwide SIM Card - The Future is Right here