Wealth Club: Now You Will Understand IRAs Wealth Club: Now You Will Understand IRAs

Wealth Club: Now You Will Understand IRAs

by Michael Fleck

January 8, 2012

Wealth Club Rule:  If your employer offers a 401(k)-type plan with a match available, you must participate, at least up until you’ve maximized the match. People, I’ve said it before: This may be the easiest, most legal way to receive FREE MONEY.  Be aware that some employers have a vesting period, where their match only becomes yours once you’ve worked there for a pre-determined period of time, but unless you’re absolutely sure you won’t be at that job for more than the vesting period, it makes no sense not to participate.  If your employer does not offer a 401(k)-type plan, and you want to start saving for retirement, the Roth IRA is most likely your best option.

Now, to put the financial cherry on the top of our retirement ice cream sundae, let me briefly touch on a recent development: the creation of what’s called a Roth 401(k). Yes, it’s as delicious as it sounds, because it combines the best of both worlds. It’s an employer-sponsored account that’s funded with post-tax dollars, so you get the tax benefits of a Roth IRA without the income and contribution limits.  Furthermore, employers can still make matches; but these funds must sit in a separate, pre-tax account that will be subject to the same taxation treatment upon retirement. The Roth 401(k) is not yet widely used, but keep it in the back of your mind if you find yourself in a job that offers it.

Hopefully this gives you at least a basic understanding of how we’re allowed to save for retirement and the benefits of doing so. See you in 2050!

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Wealth Club: Now You Will Understand IRAs