Splitting Your Retirement: Investing in a 401k and Roth IRA

The Roth IRA presents investors with a unique opportunity when compared to traditional retirement accounts. Many investors that have 401ks utilize a Roth IRA as well. Here are a few things to consider about why you might want to invest in both a 401k and a Roth IRA.

401k

If you work for an employer that offers a 401k, you should make contributions. Having a 401k allows you to contribute quite a bit more to your retirement than you could through an IRA. Each year, you can put up to $16,500 in your 401k, as opposed to only $5000 in an IRA. With a 401k, you are also eligible to receive contributions from your employer as well. This is like receiving free money just for contributing to your retirement.

Roth IRA

With a Roth IRA, you can not contribute as much per year, but you are receiving a completely different benefit. You fund your Roth IRA with after-tax dollars. Then the money is allowed to grow without paying any taxes on the returns. When you reach the age of 59 1/2, you can start withdrawing money out of your Roth IRA without paying any taxes. Therefore, combining this investment with a 401k can provide you with a very comfortable retirement. 

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