SOLVED: I Have a 401(k). Do I Need a Roth IRA?
We tell you which is the best all-around retirement plan out there.
By Mary Beth Franklin, Senior Editor
From Kiplinger's Personal Finance magazine, September 2006
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Contribute enough to your 401(k) to capture your employer's matching contribution, then switch to a Roth IRA.
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The annual contribution limits for a Roth are relatively low -- $4,000 in 2006, or $5,000 for workers 50 and older -- and not everyone is eligible. You can't contribute to a Roth if you're single and your income exceeds $110,000 or if you're married with a joint income of more than $160,000. But if you qualify, the Roth IRA is probably the best all-around retirement plan there is -- and certainly the most flexible. Four reasons the Roth rocks:
You can stockpile savings that are tax-free when you start making withdrawals in retirement.
You can withdraw your contributions at any time, without paying taxes or a penalty. That's because you don't get an up-front tax deduction for your contributions, as you do with a traditional IRA.
You get generous escape hatches that let you withdraw your earnings to pay for major expenses, such as a first home or college. After your account has been open for at least five years, you can withdraw $10,000 in earnings tax- and penalty-free to buy a first home.And you can withdraw earnings penalty-free to pay for college expenses.
You get estate-planning advantages. Unlike traditional IRAs, Roths don't require distributions. And your heirs can inherit a Roth IRA tax-free.
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