Roth vs. Traditional IRA and 401K

Posted by James Hutchinson May 7, 2009

I found out the other day that employees have another method to save for retirement in the United States.

Individual Retirement Accounts have been available for some time in two different forms:

• With a traditional IRA, monies funded can be deducted from Adjusted Gross Income, reducing tax liabilities in the year that it is funded.
• A Roth IRA, where funds are not deductible in the year funded, but any earnings from the fund are tax-free when withdrawn at retirement.

Traditional 401Ks have been available for many years. The advantages of 401Ks is that under employer sponsored plans, larger contributions and company match are allowed.

Recently Roth 401Ks have been created, so that the advantages of a Roth can be combined with the pluses of 401Ks. Consult your employer of financial professional for details as it applies to you.