I have a retirement in my heart of this edition Investing with Charles.. Today, I’d like to help you decide which of your traditional 401 (k) or Roth 401 (k) accounts is best for you.
He is currently enjoying the tranquil Pacific breeze at his family ranch in the Middle of Noware, Peru. It makes me think about the future. Maybe it’s the song of a bird, or the calm of a farm car passing by … who knows?
When it comes to retirement accounts, you have a lot of options. It’s hard to find the one that works best for you. Today I would like to explain it in an easy-to-understand manner. It’s all summarized in one factor: taxes.
In the latest episode of Investing with Charles, Research analyst Matt Clark and I will show you the best way to protect your hard-earned profits using various retirement accounts.
Watch the video above for the entire discussion. Or see some of the highlights below.
Investing with Charles: Traditional or Loss Retirement Account?
Why Employers’ 401 (k) Plans Are Easy
It may sound boring, but most of the time you have to follow your employer’s plans. It’s the investment trust menu you choose, and it’s almost always the end of it. But that’s okay, as you get an employer match.
Whether you’re paying $ 1,000 or the maximum amount (more than $ 25,000 if you’re 50 or older), your employer will give you a percentage match.
If you haven’t participated in it, you’re just leaving money at the table. In other words, every time you put in a dollar, there is a one-to-one match. This is 100% return on nickel before it is invested.
So just for that reason, I always said I would do your 401 (k) first.
Traditional 401 (k) or IRA vs. loss
If I can choose between a Roth 401 (k) or Roth IRA and a traditional option, which one should I choose?
With a traditional 401 (k) or IRA, you can get a tax cut today. No matter how much you put into the plan, you can regain the marginal tax rate. If you are in a 20% bracket, you put that dollar there, you are earning 20 cents with that tax deduction. It’s a 401 (k) or IRA.
When you take out money for your retirement life, you need to receive a distribution and pay taxes at that time. Therefore, it will be tax exempt for many years. You will later pay taxes at a much higher amount, and everyone is happy.
Well, Ross is a kind of opposite. You are not receiving tax cuts now. You put in the after-tax dollars. However, it is also the same as traditional in that it can increase tax-exempt dividends, interest and capital gains. It will be tax exempt as long as you wish, you do not have to make the minimum distribution required in your loss account — and when you do, if you take it out at retirement, you are not paying it then Tax to.
Both are smart tax avoidance measures.
Which one is right for you?
For me, it comes down to one thing: Your current tax rate..
If you’re at a stage in your life where you’re not making too much money, or if you’re in a lower bracket, go to Los Angeles.
If you’re in a high bracket, if you’re in your highest-income year and you’re taxed here, you really don’t care about the future — well, you care about the future, But the future is another day’s problem.
You are now interested in saving money with your taxes. So for me, and this is a bit arbitrary, the cutoff is about 20%. If you are paying about 20% of the tax, that is the break-even point.
If you’re paying more, use a traditional 401 (k). Get your tax cut now and take advantage of it.
If you’re paying less … If you’re paying 10% or 15%, it’s not worth it to get a tax deduction today. When you could be in a higher bracket, you’d better get it in the future. In that case, go to Los Angeles.
These are just a few of the highlights from our conversation about traditional and Ross retirement accounts. If you want to hear more click here To continue Investing with Charles Video now.
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Charles Size More
Editor, Green Zone Fortune
Charles Size More Is a co-editor of Green Zone Fortune Specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
Build Your Best Tax Shelter: Traditional or Roth 401(k)? Source link Build Your Best Tax Shelter: Traditional or Roth 401(k)?