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What’s the difference between a Roth IRA and 401k and which should you invest in? Let’s define both of these accounts first because the way they named these accounts make it confusing and gatekeep-y and leads the lay person to believe investing is too complicated for them to understand, when it’s really super simple. Anytime you see 401k, this tells you that this account can only be provided to you by your employer. Anytime you see IRA, know that it’s abbreviated for individual retirement account. Both of these accounts offer you tax benefits but in different ways. With a traditional 401k, the money that you contribute is pre-tax; this means that the money you contribute to this account is deducted from your gross pay before the government withholds any taxes from it. This account protects the income that you contribute to retirement from being taxed. Even though the amount you contribute is not taxed now, when you do withdraw the money from this account at retirement, you will be taxed at your income rate at that time. Unlike a 401k, you have to open a Roth IRA on your own with a brokerage of your choosing. With a Roth IRA, the money you contribute is after-tax income since this is the money you have in your hands after you got your paycheck in which taxes were already deducted. With the Roth IRA, all the money that grows in this account including dividends and capital gains is all yours. When you withdraw money from this account at retirement, the government will not be able to tax any of it. #rothira #401k #investing #retirement #budegting #finance #howtoinvest #rothiravs401k #financialliteracy #loudbudgeting
Duration: 152 sPosted : Sun, 03 Mar 2024 20:33:25Views
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