Add a Roth IRA to Your Existing 401K Plan
Adding the benefits of a Roth IRA to your existing 401k plan can help you allows you to make tax free contributions to your retirement while your employer matches it up to a certain amount. A Roth 401K allows you to keep a separate account from your traditional 401k, but lets you donate up to $16,500 a year (and more depending on your age and marital status) compared to the traditional $5,000 you can normally contribute to a Roth.
Are Roth IRAs the Right Choice for You?
Everyone is different, and planning for retirement can be tricky. When you incorporate a Roth into your retirement plans, you need to know about the rules:
- You can’t withdraw within your first five years without a penalty; depending on the circumstances, you will have to pay taxes on it again like you would any income, and you may have to pay a 10% fine.
- You can only contribute so much to a single IRA every year; you can have as many Roth accounts as you like, but each one will be limited depending on your marital status and age.
- You can withdraw any time, and you can choose not to withdraw at all. You may pass your investment account along to your heirs or beneficiaries and they can keep saving it. The benefits of this are enormous, and can help get around “Death Tax” issues in some states.
- If you’re a first time home buyer, you can apply money from your Roth IRA account (amounts vary) towards the down payment of your home.
Move Your Investments into your Roth IRA at Any Time
One of the best benefits of a Roth is that you can move your investments into the account throughout the year, not just after or before you pay your taxes. Since you’ve already paid taxes on this with your income, you don’t have to worry about paying taxes again (unless you pull it out when you’re ineligible) on your retirement earnings. You can have your stock dividends, rental income or whatever else you have coming in go automatically into your Roth account and your 401K, slowly building up retirement savings you can use later!
Using Roth IRAs to save money for retirement is the smart way to go, no matter which other ways you choose to save for retirement. Start saving for your retirement today the smart way!