Hi BFF’s –
Are you investing in your 401(k)? Are you familiar with which option is best for you? Let me school you a bit.
Let us dive in – a 401(k) is a retirement savings account offered to you by your employer. They take your contributions and invest it for you typically, in mutual funds. Keep in mind; YOU must make contributions. It’s not going to grow on its own. Some employers only offer the traditional 401(k) while others provide both traditional and Roth.
So now I’m sure you’re asking what the difference is? I’m glad you asked.
The main difference is when the money you contributed will be taxed. With a traditional 401(k), you pay taxes on your contributions when you withdrawal from the account at retirement around 59 ½. With a Roth 401(k) it is taxed in the beginning when you make your contribution, and your withdrawals will generally be taxed free.
How do you know which one to use?
Think of it this way, if you plan on making more money by the time you retire, which means you’ll be at a higher tax bracket, Roth might be best. Pay the taxes now as you gradually increase your salary.
However, if you plan on making less money at retirement indicating a lower tax bracket traditional might be best for you.
Keep in mind your max contributions, if under fifty (50) is $19,500 a year. Over fifty (50) is $26,000. If you hit your max and still want to invest more, no worries. Look into an IRA (individual retirement account). They have Traditional and Roth options as well.
Welp friends, that’s all I have today. Don’t forget to follow me:
