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IRA vs. 401(k): Which is Better for You? | Fox Business http://www.foxbusiness.com/personal-finance/2012/10/29/ira-vs-401k-w... Fox News Fox Business uReport Fox News Radio Fox News Latino Fox Nation Fox News Insider Login Search Stocks & Keywords Search Pension Crisis: The Gathering Storm Trending Firewall ObamaCare Rollout Jobs Report Market Check Home Video Markets Industries Economy & Policy Investing Technology Personal Finance Business Leaders On Air Small Business Home & Mortgage Career College Planning Lifestyle & Budget Health Care Retirement Taxes Tools & Calculators Job Search Slideshows 1 of 5 12/16/2013 6:49 IRA vs. 401(k): Which is Better for You? | Fox Business http://www.foxbusiness.com/personal-finance/2012/10/29/ira-vs-401k-w... FOLLOW FOX BUSINESS By Donna Fuscaldo / Published October 29, 2012 / FOXBusiness Get Our Free Newsletter Enter Email Address Like 126k Follow @foxbusiness Print When it comes to retirement planning, you have choices when it comes to picking what savings vehicle best fits your lifestyle. While Email most people will simply go with the 401(k) plan offered by their Share employer, there are other options like the Roth IRA. Like 25 When deciding which tool will house your nest egg, experts advise Tweet 26 taking into consideration your discipline, income and tax goals. SSharehare 8 With a company-sponsored 401(k) plan, employees can contribute pre-tax dollars from each pay check, which lowers their taxable RELATED STORIES income at the end of the year. In some cases the employer will Roth IRA vs. 401(k) for match a portion of the contributions, effectively giving the 20-Something Saver employee free money. When it comes time to cash out of the plan, Best Ways to Get Into RECOMMENDED VIDEOS Investing in Your 20s when you reach 59 ½, you would have to pay taxes on the Bo Dietl on U.S. foreign affairs Ins and Outs of IRA distributions. Accounts An Individual Retirement Arrangement (Roth IRA) is another retirement savings tool. The money you put this account can’t be Over-the-counter written off on taxes, but money grows tax free and you don’t pay birth control? taxes on the money when you take it out as long as you are over 59 ½ and have had the Roth IRA open for at least five years. Which is Better for You? MORE FROM FOX BUSINESS Investing in the According to financial experts, the 401(k) is attractive to many Right Mutual Funds people because the money is automatically taken out of their pay for Me check—there’s no effort to save. “The onus is on the employer,” says Tisa Silver-Canady, assistant director at the office of Financial Education and Wellness at the University of Maryland. “It makes This Little-Known Credit Card Perk sense for people that don’t want to worry about doing it Can Save You Big themselves.” The amount you can contribute to a 401(k) each year is higher How to Cut 2 of 5 12/16/2013 6:49 IRA vs. 401(k): Which is Better for You? | Fox Business http://www.foxbusiness.com/personal-finance/2012/10/29/ira-vs-401k-w... than a Roth IRA at $17,000 for people under 50 and $22,500 for Home-Buying Costs those over 50. The possibility of an employer match with a 401(k) also makes it attractive. “It might be that the employer matches the first 6% at 50 Stock Futures Point cents on every dollar and that’s an immediate 50% return,” says to Higher Open David Ning, owner and operator of personal finance blog Moneyning.com, noting that since the money is taken out before you get the pay check it helps people sock away money for FROM AROUND THE WEB retirement. “Studies show it really works. If you don’t see it you Letting Go of don’t miss it,” he says. Keeping Up Prudential There are also downsides to 401(k) plans. The plan choices can be limited. For instance, your employer may only give you two or three fund choices to invest in, limiting your options and preventing the What's this? highest return on your money. In addition, the fees associated with Investing › the plans could lower your investment dollars. Before deciding on a 401(k)plan, Ning suggests checking for a company matching program, assessing the plan options and the fees. Midday Market Report: 12/16/13 In the case of the Roth IRA, Adam Bergman, a tax attorney with the Boeing Raises Dividend by 50% IRA Financial Group, says the biggest advantage of this Avago To Buy Storage Chipmaker LSI For $6.6B investment form is that your money grows tax free. With income tax rates expected to increase in the future, Bergman says this could BANK RATES be “potentially tax efficient.” Mortgage Home Equity Autos CD Rates Loan Type Graph Rate +/- Last In addition to a Roth IRA giving you a tax benefit when you cash out, its self-directed nature puts you in the driver’s seat when it 30 Y Fixed 4.49% 4.4 comes to choosing the funds. However, there are limits to have 15 Y Fixed 3.52% 3.4 much you can invest each year: People under 50 can only invest 30 Y Fixed 4.57% 4.5 $5,000 while people over 50 can invest $6,000. Jumbo 5/1 ARM 3.46% 3.4 If you make more than $183,000 jointly you won’t be eligible to 5/1 Jumbo invest in a traditional Roth IRA. Bergman notes that since 2011 2.94% 2.9 ARM there are no income restrictions for a Roth conversion, which Find Personalized Rates means you can make a traditional IRA contribution a nd then Enter Zip Co Search convert the funds to a Roth IRA, which would be subject to tax. Sponsored Topics Not to mention that since the money invested isn’t pretax, it doesn’t lower your taxable income. If your Roth IRA lost all its money 1 Retirement Calculator because of a bad investment, you would have nothing to show for 2 Best Annuity Funds it, explains Bergman, but if you chose a 401k() and lost all your 3 High Yield Savings Account money, you would have at least lowered your taxable income. 4 Stocks to Buy Now Although deciding whether to go with a 401(k) or Roth IRA is a 5 College Rankings personal decision, there’s nothing stopping you from investing with both. “In a perfect world you would do both,” says Silver. You 6 Health Insurance Comparison would have a 401(k) from your job and something you were in control of with an IRA.” 3 of 5 12/16/2013 6:49 IRA vs. 401(k): Which is Better for You? | Fox Business http://www.foxbusiness.com/personal-finance/2012/10/29/ira-vs-401k-w... 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