SavingsTalk.com

chicago_bull · 10-31-2007, 03:25 PM

I work for the state and I have a retirement plan already with my job but they don't call it 401K, they call it "A retirment plan" and they match me at 5 years. I wanted to the difference between 401k, Roth IRA, Reg. IRA and are there anymore other retirments plan out there that I can choose from? I was also thinking of opening a saving account and using that for retirement account, I will not touch until I'm 65 but I wanted to know do they charge on taxes awhen I take out and will I make money on the interest as more or less than with a 401K, ROTH IRA OR REGULAR IRA. If it's not good to get a savings account to use for retirement what the advanges of getting a savings account?<br />

big$saver · 10-31-2007, 03:25 PM

If you intend to set aside money that you won't touch until you're 65, you should definitely use a tax-advantaged investment such as a Roth IRA, Traditional IRA, or 401(k). Since you are a state government employee, your "retirement plan" may be a 457 plan, which operationally is very similar to a 401(k). There's also a 403(b) plan that I believe is available only to educators.

Contributions to a Traditional IRA or 401(k) are tax-deductible; you pay income tax at withdrawal. There is also a 10% penalty if you withdraw before reaching age 59 1/2, with a few exceptions.

Contributions to a Roth IRA or 401(k) [the Roth 401(k) is fairly new, so you may not have the option] are made on an after-tax basis, but withdrawals are tax-free. You can withdraw penalty-free from a Roth IRA up to the amount you contributed. As with the Traditional IRA, there are special circumstances where penalty-free withdrawals are allowed, though the Roth probably offers more flexibility.

If your work-based "retirement plan" is in fact a 457, there is one noticeable difference vs. a 401(k): there isn't a 10% penalty for early withdrawal, a decided advantage if you are considering early retirement. Contribution limits are basically the same for 401(k), 457, and 403(b) plans.

If your employer offers you any matching funds, take them! That goes for whatever type of retirement plan they have. Beyond that, once you have maximized the employer match, most people would benefit more from a Roth IRA than a Traditional IRA, but it depends a lot on your own situation.

Minsk · 10-31-2007, 03:25 PM

These are all essentially the same thing, but with very different flavors.

-a 401k (or 403b for non-profits) is a retirement savings plan. Benefits: usually your company will contribute about 3% of your salary (that's free money!); you aren't taxed on the money you put into this account; and it lowers the amount of "taxable income" you report every year. You can contribute up to $15,000 per year. This is usually the best deal you can get.

-an IRA is the same idea, but you can open this account through almost any financial institution. Benefits: you aren't taxed on the money you put into this account; and it lowers the amount of "taxable income" you report every year. Cons: Your company doesn't contribute to it, and you can only contribute about $4,000 into this account, and when you withdraw the money at retirement, you're taxed on that money.

-a Roth IRA is almost the same thing, but the contributions are not tax-deductible, but the withdrawals are tax-free. So basically it's a choice between paying tax on the money when you put it in (Roth) or when you take it out (regular). If you have more than 10 years to go until retirement, it's generally considered better to go with the Roth IRA, since you'll end up paying less in taxes (you pay a little tax on the small amount you put in, but you get to take out the compounded interest for free at the end).

-technically these are all "savings accounts", because you are saving money, but IRAs are pre-tax accounts and regular savings accounts are after-tax money (the money in the account counts as part of your tavable income every year) and usually don't accumulate as much interest.

gooner · 10-31-2007, 03:25 PM

As you are a state gov employee, your retirement plan is 403/457.

401k, Roth IRA, Regular IRA, 403/457 are nothing but savings account planned for retirement. So typically you do not need separate savings account for retirement!

Now you wanted the differences between all these. Check following links here which gives simple understandable comparison:

401k vs Roth IRA - http://www.theusefulinfo.com/finance/compare4R.html

Regular IRA vs Roth IRA-
http://www.theusefulinfo.com/finance/compareTR.html

This should give you good idea.

Also check this link:
http://www.theusefulinfo.com/finance/2007/04/what-is-conventional-wisdom-about.html

I hope this helps!

10-31-2007, 03:25 PM	#1
chicago_bull Piggy Bank Join Date: Jul 2006 Posts: 60 Rep Power: 6	Questions about 401k, Roth IRA, Regular IRA,and savings accout? I work for the state and I have a retirement plan already with my job but they don't call it 401K, they call it "A retirment plan" and they match me at 5 years. I wanted to the difference between 401k, Roth IRA, Reg. IRA and are there anymore other retirments plan out there that I can choose from? I was also thinking of opening a saving account and using that for retirement account, I will not touch until I'm 65 but I wanted to know do they charge on taxes awhen I take out and will I make money on the interest as more or less than with a 401K, ROTH IRA OR REGULAR IRA. If it's not good to get a savings account to use for retirement what the advanges of getting a savings account?<br />

10-31-2007, 03:25 PM	#2
big$saver Piggy Bank Join Date: Jul 2006 Posts: 59 Rep Power: 6	Questions about 401k, Roth IRA, Regular IRA,and savings accout? If you intend to set aside money that you won't touch until you're 65, you should definitely use a tax-advantaged investment such as a Roth IRA, Traditional IRA, or 401(k). Since you are a state government employee, your "retirement plan" may be a 457 plan, which operationally is very similar to a 401(k). There's also a 403(b) plan that I believe is available only to educators. Contributions to a Traditional IRA or 401(k) are tax-deductible; you pay income tax at withdrawal. There is also a 10% penalty if you withdraw before reaching age 59 1/2, with a few exceptions. Contributions to a Roth IRA or 401(k) [the Roth 401(k) is fairly new, so you may not have the option] are made on an after-tax basis, but withdrawals are tax-free. You can withdraw penalty-free from a Roth IRA up to the amount you contributed. As with the Traditional IRA, there are special circumstances where penalty-free withdrawals are allowed, though the Roth probably offers more flexibility. If your work-based "retirement plan" is in fact a 457, there is one noticeable difference vs. a 401(k): there isn't a 10% penalty for early withdrawal, a decided advantage if you are considering early retirement. Contribution limits are basically the same for 401(k), 457, and 403(b) plans. If your employer offers you any matching funds, take them! That goes for whatever type of retirement plan they have. Beyond that, once you have maximized the employer match, most people would benefit more from a Roth IRA than a Traditional IRA, but it depends a lot on your own situation.

10-31-2007, 03:25 PM	#3
Minsk Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	Questions about 401k, Roth IRA, Regular IRA,and savings accout? These are all essentially the same thing, but with very different flavors. -a 401k (or 403b for non-profits) is a retirement savings plan. Benefits: usually your company will contribute about 3% of your salary (that's free money!); you aren't taxed on the money you put into this account; and it lowers the amount of "taxable income" you report every year. You can contribute up to $15,000 per year. This is usually the best deal you can get. -an IRA is the same idea, but you can open this account through almost any financial institution. Benefits: you aren't taxed on the money you put into this account; and it lowers the amount of "taxable income" you report every year. Cons: Your company doesn't contribute to it, and you can only contribute about $4,000 into this account, and when you withdraw the money at retirement, you're taxed on that money. -a Roth IRA is almost the same thing, but the contributions are not tax-deductible, but the withdrawals are tax-free. So basically it's a choice between paying tax on the money when you put it in (Roth) or when you take it out (regular). If you have more than 10 years to go until retirement, it's generally considered better to go with the Roth IRA, since you'll end up paying less in taxes (you pay a little tax on the small amount you put in, but you get to take out the compounded interest for free at the end). -technically these are all "savings accounts", because you are saving money, but IRAs are pre-tax accounts and regular savings accounts are after-tax money (the money in the account counts as part of your tavable income every year) and usually don't accumulate as much interest.

10-31-2007, 03:25 PM	#4
gooner Piggy Bank Join Date: Jul 2006 Posts: 75 Rep Power: 6	Questions about 401k, Roth IRA, Regular IRA,and savings accout? As you are a state gov employee, your retirement plan is 403/457. 401k, Roth IRA, Regular IRA, 403/457 are nothing but savings account planned for retirement. So typically you do not need separate savings account for retirement! Now you wanted the differences between all these. Check following links here which gives simple understandable comparison: 401k vs Roth IRA - http://www.theusefulinfo.com/finance/compare4R.html Regular IRA vs Roth IRA- http://www.theusefulinfo.com/finance/compareTR.html This should give you good idea. Also check this link: http://www.theusefulinfo.com/finance/2007/04/what-is-conventional-wisdom-about.html I hope this helps!

SavingsTalk.com

Your guide to saving money and making smart investments!