Category Archives: 401k

401K money hasn’t been taxed yet

Its taken from pretaxed paycheck dollars. But when you go to withdraw it at 59.5 years of age and following it will be taxed at that time, at your tax rate at that age. In theory your tax should be less, the older you are…

Roth IRA money is paid by you, in after tax dollars, and you don’t have to pay taxes on it when you go withdraw it at 59.5 because you’ve already paid tax on it, before contributing it.

As far as match, some companies provide a match of maybe 50% of your contribution up to 5% of your salary. Or they might match 5% of your contributions etc. They define their own percentage and terms on the match, which is free money to you. Its recommended that if your company provides a match in any amount, to take it, but do ONLY whats necessary to get the matching funds. The rest of your retirement contributions should be funneled to a Roth.

Why not it all in one basket? Thats not diversification. Also company plans generally have picked for you what you can invest in. You get greater choice with a Roth. Plus if you’re in a company plan, you’re totally at their mercy if they should decide to change companies, or if they want to put all of their investments in their own stock…