401k Advice

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.