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Month: September 2011

what is the 401k plan

What is the 401k plan? It’s a retirement plan with pretax incentives. Today, there are several types of individual retirement accounts (IRA’s) providing better performance usage of retirement proceeds as investment vehicles. The advantages of traditional IRAs are that they offer a wide range of investments available from stocks, bonds, mutual funds without the tax levies on capital gains, dividends or interest, until a withdrawal is made by the IRAs owner. Today popular IRAs are the self-directed accounts, which share identical retirement goals as a traditional 401K plans. The biggest difference is that the owner of the IRA account gets to make the decisions on how the funds are invested, increasing the value of the IRA account substantially.

How to open an IRA

How to open an IRA is a question that arises frequently. There are a number of ways to do so depending on your financial position. Employees of businesses often have 401k plans. These are defined contribution plans where you choose what you will contribute to a retirement plan. This differs from a defined benefit plan where the payment you get from your plan is defined for you, while the contribution may fluctuate based upon your employer’s wishes. An IRA is basically a solo 401k plan that you run independently from an employer.

What Is A Roth IRA?

What is Roth IRA? A Roth IRA is an individual retirement account that allows investors to place money into an account tax-free, provided certain stipulations are met. The name stems from Senator William Roth of Delaware, the sponsor for the legislation passed which made tax-free individual retirement accounts possible. The legislation governing Roth IRAs, and indeed all retirement accounts enjoying tax breaks or tax-free status, states that only a certain portion of annual income may be invested in an IRA. A Roth IRA differs from other retirement plans or accounts in terms of taxation. The taxes saved or exempted from a Roth IRA are granted upon withdrawal of the funds placed into one of these accounts. Whereas some traditional savings accounts allow for investments before the money is initially taxed, a Roth IRA permits taxes to be ignored upon withdrawal of the funds from the account. Thus, investors pay no taxes on the earnings received from their investments into these specialized retirement savings accounts.

401k Max Contributions

When people lay out their goals for retirement, they will soon realize that they will need to invest some of their income to reach those goals. There are several ways to go about investing for a wealthy retirement. Some of the options are the stock market, bonds, mutual funds, real estate and a 401k program. All of these have different levels of risks and rewards, so it is crucial to select the one that is right for the individual. A 401k and a self-directed IRA LLC are excellent choices for all investors, if they have the opportunity to open one of these accounts.