401k vs Roth IRA
We all know that investing for retirement is a good thing. And the younger you start doing that the better because that money grows faster and faster than if you didn't invest it.
But how do you even get started? What options are right for you? All good questions. That’s why I’ve laid out some of the most popular options below for you:
WTF is…a 401k?
So a 401k is a retirement savings plan courtesy of your company. Your employer takes out pre-tax money from your salary and invests it for you.
That way, instead of you getting your paycheck every month and being responsible for putting away money for retirement (which like who’s gonna do that?) your company does it for you. I know, pretty sweet…
And for all my tax lovers, don’t worry—your 401k does eventually get taxed. You get to invest pre-tax money in it but when you withdraw you pay taxes on the total amount.
Also, word to the wise: if you’re planning on joining the 27 club like Kurt Cobain or Amy Winehouse, def don't do a 401k. You can’t access it until your 59 ½—unless you wanna get fined.
...Don't get fined.
I’ll also give you a pro-tip: if your employer offers to match whatever you put in, it might make sense to contribute as much as they’re willing to match. That’s like free money, duh.
Is a 401k for me? 401ks are great for you if:
You think you’re going to be making less when you retire than you do now. That’s because if you make less in the future compared to your current self, then you’ll pay less money in taxes overall—and that’s obvi super beneficial for your wallet.
If you think you’ll be making more when you retire that you currently do, then a 401k may not be the best move for you. But a Roth IRA might be. What’s that? Read on…
WTF is…a Roth IRA?
A Roth IRA is similar to a 401k except instead of contributing pre-tax money to a retirement fund, you contribute taxed money to an IRA—an “Individual Retirement Arrangement.”
So with a Roth IRA, you’re still putting money aside for retirement, you’re just doing it with money that's already been taxed.
Then, when you’re 59 ½, and ready to withdraw your savings and move to Boca, you don’t have to give the IRS a cent of your Roth IRA because you paid your taxes up front.
They’re honestly lit if you’re like 24 and making ok money doing social media for a startup but still wanna be smart with your money now. However, if you're making a ton now, then a Roth IRA probably wouldn’t be for you. That’s because if you’re at your peak earning potential and you expect to be making less by the time you retire, you’ll be taxed more now than you would be later and that’s less money in your pocket overall.
But also don’t freak out if you have a Roth IRA and out of the blue get a monster raise. You won't have to take all your money out of your Roth, you just won’t be able to keep making contributions
Is a Roth IRA for me? Roth IRAs are great for you if:
You think you’re going to be making more when you retire than you do now. How do you know if that’s going to be you? You don’t, but make your best guess. If you’re just at the beginning of your career, or you don’t make a ton now but think you might later, a Roth IRA wouldn’t hurt.
Whichever you choose—a 401k or a Roth IRA—saving money for retirement is a good thing. Remember we want our wealth to accumulate. And if you really can’t choose, you might be able to contribute to both. And that’s that on diversification—(spreading out where you put your money).
To learn more about the difference between a 401k and a Roth IRA, watch this video. Seriously, you won't regret it. Anyways, remember to subscribe and, as always, stay rich bitch.