What Is a Roth IRA and Should You Have One?

If you've decided you need to start preparing for retirement, you may have come across several unfamiliar terms. What is a Roth IRA? A Roth IRA is a tax-advantaged investing account similar to a 401k or a traditional IRA. You need to follow special Roth IRA withdrawal rules, but you will benefit from it in the end.

With a Roth IRA, you contribute money to a mutual fund. The contributions you have made have already been taxed as regular income. You can continue to contribute up to a certain amount to an IRA each year, more if you're married. When you reach 59 1/2 and retire, you can withdraw the money. The money you withdraw will be contributions you made in addition to earnings. You don't have to pay taxes on either one. That means all your earnings you get to keep tax free once you withdraw them.

A Roth IRA is a great addition to any retirement portfolio. If you can get a 401K with an employer match, you should max that out first. With a 401K, you do not have to pay taxes on the contributions now. Instead, you pay taxes when you withdraw it during retirement. This means more money get's to earn capital gains and dividends. If you get an employer match, your employer has agreed to add more money to your 401K as long as you contribute. This is free money you should take advantage of before you start contributing to an IRA or other accounts.

The more you invest now, the more you'll have during retirement. That means you can live a more comfortable and exciting retirement. Start saving and investing now and benefit from it later. You will be glad you did when you're able to enjoy your retirement in the years to come. Invest in a Roth IRA and look forward to the tax-free earnings later.

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Why You Should Have Roll Over 401K

If you've been with your employer for five years or more, chances are you accumulated enough savings for the first few years of your retirement. However, you'll never know when a company merger or take-over will take place. Even if that doesn't happen, there are a few reasons why you should consider roll over 401K to another third party investment.

When you got your first job, your company might have assisted you in setting up your 401K. This relatively new type of retirement plan essentially allows you to set up a tax deferred investment which allows you to accumulate funds up until you reach sixty years of age. It is tax deferred in that you don't have to pay income taxes until the fund is withdrawn. Employers also typically match the employees contribution to increase the savings.

A roll over simply refers to moving you current plan from a former (or even current) employer into another plan or individual retirement account (IRA). Many IRAs have similar policies to your previous investment, and there are many reasons why you would want to consolidate your investment into an individual account. If you have several 401k plans from different jobs, then you may want to roll over to an IRA.

The first reason why many employees choose to do so is to cash out, although this is not a very good idea. Remember that these traditional investments are tax-deferred, and you will have to pay the tax on the amount you withdrew early, plus a penalty. The general rule is a ten percent penalty on the amount taken out, although there are a few exceptions. The rule tries to discourage people from doing this so that they can get more benefits later on after they retire.

Another reason people choose to do so is to cut down on the expenses. With individual retirement accounts, the internal costs are usually much lower because you get to decide how the money will be invested. Because your company dictates how the plan is spent, they may place it in a higher yielding but riskier venture.

The average internal cost for the usual 401k is around two to three percent while IRAs can have less than one percent in total expenses. Those figures can have a huge impact ten or twenty years down the road.

If you've changed jobs frequently over the last few years, you may have different investment plans initiated by your previous employers. While there is nothing wrong with this, you'll end up with different accounts. Not only will you receive more paper work, those other accounts will remain dormant and the funds will not be maximized. If you consolidate those funds, you'll be able to divert the investments and maximize all your savings in a good portfolio.

Keeping track of all that paperwork can also be a hassle. Once you roll over 401K to only one investment plan, you'll have more time to go over the fine details and you won't have to worry so much.

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