Considering the benefits: 401k and Roth IRAs

The most commonly overlooked option when you convert your 401k is the Roth IRA option. A Roth IRA presents several benefits that you cannot get from a traditional IRA account. When you are faced with the decision of what to do with your retirement funds, you should look at all of your options in detail. Many people have no idea what to do with their 401k when they leave their current job, a Roth IRA can be the best choice for many:

Tax Free Earnings

The Roth IRA is basically the opposite of a traditional IRA when it comes to tax law. With a regular IRA or 401k, you do not pay taxes on the money that you put into the account on the front end. All of the money that goes into your IRA from your paycheck is deducted from your taxable income and you do not pay taxes on it. The money then grows in your retirement account. Then when you reach the age of retirement, you pay taxes on the distributions as if it was regular income.

With a Roth IRA, you do the exact opposite of that. You pay taxes on the money before you put it into a Roth IRA. Therefore, you cannot reduce your taxable income with a Roth IRA. However, over the many years that your money is growing, it can accumulate tax free. Then when you reach 59 1/2, you can withdraw the money tax free. This represents a huge opportunity for you, in total dollars. Also, you will not have to pay taxes on it when you withdraw it. The money is tax free and you can use it as you wish. This represents a major advantage on the back end of the program when compared with regular IRA or 401k accounts.

No Minimum Distribution

Another unique feature of the Roth IRA is the ability to defer minimum distributions at the age of 70 1/2. With a regular IRA, you have to take a minimum payment at the age of 70 1/2 and pay income tax on it. With a Roth IRA, if you don't need the money, you can simply leave it in your account to continue growing. Then when you need the money, you can take it out and it will have grown from the interest.

Flexibility of Investment

A Roth IRA also offers you many options to invest in. IRA's are much more flexible than a traditional 401k account. With a 401k, you get a few investments to pick from. With an IRA, you can invest in almost anything. This gives you more potential for return on your investment and the ability to watch those tax free dollars grow.

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