Straight-Forward
401K Advice: Make Your
Investments Grow With Your Career!
If you have a 401K program with the option for your employer to
match contributions, then you do not want to pass up this
opportunity for free money. Yet, you don’t want to limit your
investments to that account either.
The big problem with a 401K, for people who are advancing
rapidly in their career, is that you pay taxes when you retire,
and those taxes will be paid at the income bracket you fall
into at the end of your career. You may be in a low income
bracket right now, but as you move up the ladder you will
likely enter higher brackets, and by the time you are old
enough to start taking withdrawals from your 401K account, you
may find yourself at a much higher tax bracket. Being in a
higher tax bracket results in you paying higher tax rates on
your investment funds. These taxes could potentially be much
higher than if you went with other retirement options at the
beginning of your career.
A Roth IRA could be a better option if you expect to be in a
higher income bracket at the time you withdraw the money,
because it takes taxes out at your current tax rate. Even if
you are making a lot more money by the time you are of age to
receive disbursements, those withdrawals will be tax free. This
can work out to considerable tax savings for someone who pays
into the fund at a lower income bracket than the bracket they
fall into when they retire. So what is the best 401K advice for
someone moving up the chain of prosperity?
Do not pass up the company 401K if your employer is offering to
match any contributions into the account. You may just want to
invest enough into the 401K to get all of the benefits of your
company’s matched money, and then put the rest of the money you
want to invest into an IRA account. Since you open an IRA
account on your own and it is not connected to your employer,
you will have to set up and manage this account on your own,
but in the end it could work out to financial savings that make
it worth the time and effort when you retire.
401K advice is best
taken with your specific financial situation in mind, so you
may want to seek a professional for further assistance, but for
the most part, this plan will work for people who are planning
on moving into higher tax brackets along the road to
retirement. Another benefit to having a Roth IRA account is
that you will have an easier time getting access to the money
before you retire, should something unexpected arise and you
need emergency funds.
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