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401K vs. Roth vs. Pension Plan

401 K Retirement plan at your job? You should take maximum advantage of this if it is an option for you. A 401k plan allows you to defer some of your income to retirement time. It will be taxable when you take it out, but you will likely be in a lower tax bracket. 

This plan lowers the amount that you are actually taxed on. 

In 2019, you can defer up to $19,000 of your earnings each year. 

If you are over 50, you can defer an additional $6,000 each year, for a total of $25,000. 

There are also self-employed 401k plans available. The deduction is limited to 25% of your wages. 

Some companies have matching programs where they will match 3-5% of your wages. They will put this money in your 401k for you. THIS IS FREE MONEY! YOU HAVE TO TAKE ADVANTAGE OF THIS! 

Some companies will allow you to borrow against your own 401k. 

The downside is that you must pay it back or you will be taxed on the amount you borrow. 

Also, if you withdrew the money from your 401k before turning 59-1/2, you have to pay tax on the money plus a 10% early withdrawal penalty.

There are several exceptions to the penalty. Please talk to us before you withdraw money. You may be able to avoid the penalty! 

Traditional IRA account—this allows you to defer $5,500 of income per year. This means you will pay less tax. You can defer an additional $1,000 per year if you are over 50. You can withdraw the money in retirement later. Borrowing is not allowed. There is a 10% early withdrawal penalty if you take money out before age 59-1/2. 

There are some income requirements. 

We know some exceptions to the penalty. Please talk to us before taking money out of your IRA account! 

Roth IRA—there is NO immediate tax savings. There are longer term benefits. If you keep your money in the account at least 5 years, any growth of the money is tax free. This is a FAMILY WEALTH BUILDER! 

Defined Benefit Pension Plan—this is a great retirement saver tool if you own a business. You may be able to put away $50K or more depending on age and other factors. It starts with talking to a pension adviser. If no employees, it is best. Employees allowed if they qualify. 

You will have to contribute for them, based on a formula.