Since you used post-tax money in the Roth account, the account balance that you see is what you’ll get. Keep all your money in the Roth IRA for yourself and for your children. Obviously, the Traditional IRA allowed you to avoid taxes earlier in life, but I like the added simplicity of seeing an account balance and knowing you get to keep it all. And there are certainly differences between the Traditional IRA and 401k (as well as the Roth 401k and Roth IRA) that should be investigated (consult the Wikipedia article) that I may gloss over for the sake of simplicity once again. I’ll highlight some of the generic differences that are typical in these types of articles (just google Roth vs. But the most significant advantage of the Roth IRA over Traditional IRA that is hardly ever mentioned in articles is that all contributions to a Roth IRA may be withdrawn at any time for any reason penalty and tax-free.

Contribution limits are effectively higher for the Roth. Essentially, the main difference is that the Roth versions are post-tax money; thus, taxes don’t have to be paid later in life during normal distributions. Likewise, you can rollover your 401(k) to a Traditional IRA, and then roll that over to a Roth IRA. The limits for the 401(k) are much higher than the IRA, and these funds can later be rolled over into an IRA account (which I recommend to simplify things and also for the increased flexibility) upon termination of employment. The reason I like putting this second segment of money into an IRA instead of a 401(k) is because of the exponentially more investment options you have with your own plan and the flexibility involved. Roth accounts let you get more money into them and help your bottom line. A Roth IRA is typically preferred since a Traditional IRA is only tax deductible if you are below a certain income limit and your employer does not offer an applicable retirement plan.

If your tax rate stays the same from contribution to distribution, then the Roth and Traditional versions will essentially have no difference on the bottom line (although there are certainly a variety of other differences). Help your children avoid that and contribute to a Roth IRA. To reiterate an important point, a 401(k) or IRA is not an investment in itself; it is an effective vehicle in which to hold investments. Some real estate brokers also hold a license as a mortgage broker. Thus, even if you play the game perfectly about your contributions and where to hold them, if you make poor investment choices, you won’t fare well. We now understand the basic differences between Roth and Traditional retirement accounts as well as the order in which to contribute (for what to invest in, see my Investing Advice for the Masses and Lazy Portfolios posts). Of course, it’s much easier to win the game in the fourth quarter if the first three quarters went very well. During a basketball game, do you only try in the first three quarters? It determines the outcome of the basketball game. 6,666 to a traditional account. One option for individuals is to establish an investment retirement account or IRA.

Along the same lines, financial advisers and commentators frequently talk about the importance of the contribution and accumulation phases of the retirement accounts, while completely neglecting the distribution phase. If you make lousy decisions during the distribution phase, your great decisions during the other phases won’t mean as much. This is where running a letting agency could solve all of these issues AND be a great asset in its own right (Leverage FREE too) plus it’s a load more tax efficient. For a great highlight of the differences, see Wikipedia’s 401(k) IRA Matrix. I’ll also refer to a general 401k and traditional IRA both as “traditional” to simplify wording and avoid confusion. 1. First, contribute to your employer’s 401k plan up to the employer match. First, let’s go over the basics just so we’re all on the same page. You should contribute as much as you can as early as you can to truly see the power of compounding and the savings you will have over the course of 40 years avoiding paying taxes to the IRS is astounding.