401k Research Paper

It’s never too soon to start planning for retirement. All financial advisors agree that the earlier you start to save for your retirement, the better off you’ll be when you reach retirement age. So how is your retirement savings? Did you wake up one day and realize that you don’t have anything in place besides Social Security? Don’t worry, for most people if you’re still working there’s still time to build up some supplemental retirement money that you can use when you retire. The two most common retirement savings options are an individual retirement account, or IRA, and 401k plans. To decide which option is best for you, it is important that you know the differences between the two. Let’s cover the basics for each plan, and also a
However, if you are still working your employer may not allow you to do so. You are required to receive distributions from your 401k every year after you reach age 70 ½, whether you want to or not. All money received from your 401k plan is taxable income, since the contributions to the account were made pre-tax. This is a major difference between 401k plans and Roth IRAs.

There are no income limitations when it comes to 401k plans. The only limitation is the amount you are allowed to contribute, up to $18,000 per year. This makes 401k plans available to all employees, regardless of how much or how little they make each year.

IRA Accounts
To open an IRA account, you must be under the age of 70 ½ and earning an income. IRAs are available at banks and other financial institutions and must be opened by you. Your employer is not involved in any way with your IRA. All contributions to an IRA are made from the money left over after income taxes have been taken out of your paycheck. Contributions to your IRA may be tax deductible based on your
The limit is $6,500 for those over 50 years old, and $5,500 for those under 50. You can continue to make contributions to your Roth IRA after you begin receiving payments at the age of 70 ½, which makes Roth IRAs a good choice for people who continue to work after retirement age.

You may begin to receive payments from your Roth IRA account when you reach the age of 59 ½, but you absolutely have to after you reach 70 ½ years of age. All funds withdrawn from your Roth IRA are not subject to income tax, since the money contributed is from after tax earnings, and contributions were not previously used as a tax deduction. This is a major difference that makes Roth IRAs an attractive option for many retirees.

There are income limits when it comes to Roth IRAs. People who are married and file taxes jointly cannot make more than $194,000 combined annually to qualify for a Roth IRA account. Single or head of household taxpayers must make less than $132,000 per year in order to qualify. Make sure your income does not exceed these numbers before attempting to open a Roth IRA to avoid any possible tax