(KTVI) - Like many people, everyone needs to plan for their retirement and it’s never too late to start. What plan is best for you Roth IRA, 401(k), traditional IRS or 401(k) plan; Bob Wamhoff, President of Wamhoff Financial Planning & Accounting Services, shares the pros and cons of each to help investors make the decision.
Roth IRA / Roth 401(k):
Pro: Because the money is invested after taxes have been taken out of your income, you are not taxed when you withdraw the money in retirement, giving you a lot of flexibility in retirement.
Con: You will likely find yourself in a higher tax bracket when working and investing the money than you’re in during retirement, hence, the taxes you pay may be higher.
Con: There is no guarantee that the tax laws will change between now and your retirement. For example, Social Security income did not used to be subject to taxation. It is today because lawmakers changed the rules. Or, what if a flat tax and no income tax and a national sales tax is enacted at some point. You’re at their mercy, and the longer you have between now and retirement, the more danger and uncertainty you face in terms of what Washington does with taxes.
Regular IRA / Regular 401(k):
Pro: Your investment dollars are pre-tax, so the impact to your overall income is less, and you can invest more during your working years. In other words, every dollar you invest really only takes roughly 69 cents out of your paycheck. You get instant gratification.
Con: Because you’re not paying tax on this money now, you will have to pay when you withdraw it in retirement, so you must plan ahead for this.
Con: Many times, you cannot deduct a regular IRA due to participation in a 401(k), and due to your income.
In the end, you need guidance to determine what is right for you and your family.