Retirement Planning: IRA and 401(k) -- With Roth Options

When it comes to retirement planning, most people go in for an IRA or a 401(k). But the next question becomes this: to Roth or not to Roth? The answer depends on your tax situation and what you want to get out of it. And, with the new Roth 401(k) option, you could be sitting even prettier. So, in your general financial planning sessions, don't forget to include retirement planning. And, to help you out, here are some of the basics of the IRA and the 401(k), with their Roth options:

Traditional IRA

• Deductions: If you or your spouse are not in an employer-sponsored plan, it is fully deductible.
• Earnings: Not taxed until you withdraw them.
• Withdrawals: Fully taxable, and may be taken without penalty at age 59.5. Must start taking them at age 70.5.
• Income limits: Your deductions phase out as your adjusted gross income reaches $75,000-$85,000 (married, filing jointly) and $50,000-$60,000 (single).

Roth IRA

• Deductions: Contributions are not tax-deductible (but you may be eligible for a retirement savings contribution credit)
• Earnings: Never taxed.
• Withdrawals: Tax free as long as the account has been open for at least five years and you are at least 59.5.
• Income limits: Your contributions phase out as your adjusted gross income reaches $150,000-$160,000 (married, filing jointly) and $95,000-$110,000 (single).

Traditional 401(k)

• Deductions: Tax deductible.
• Earnings: Not taxed until you withdraw them.
• Withdrawals: Fully taxable, and may be taken without penalty at age 59.5. Must start taking them at age 70.5.
• Income limits: No income limits.

Roth 401(k)

• Deductions: Contributions are not tax-deductible (but you may be eligible for a retirement savings contribution credit)
• Earnings: Never taxed.
• Withdrawals: Tax free as long as the account has been open for at least five years and you are at least 59.5.
• Income limits: No income limits.

Note that retirement planning comes with contribution limits. For an IRA it is $4,000 per year ($5,000 if you are at least 50), and for a 401(k), the limit is $15,000 ($20,000 if you are 50 and over). However, starting with tax year 2007, that limit is boosted to $15,500 ($20,500 for 50 and over).

You can check with the IRS or with your tax attorney or retirement planning specialist for more information on tax benefits.


retirement planning, personal finance, financial planning, finances,
IRS, IRA, Roth IRA, 401(k), Roth 401(k)