Individual Retirement Account
Babe has hit the 401(k) contribution limit for this year and is looking for another place to stash her retirement savings.
Other than throw some my way…I suggested an IRA.
An Individual retirement account is an excellent alternative to a 401(k).
Tax incentives, with no company necessary, are the defining features of an IRA.
I suggested to Babe she open a Roth IRA. Taxed upon deposit, the money then grows tax free and can be withdrawn tax free at any time. Babe already has retirement savings locked up in her 401(k), so a Roth IRA will giver her flexibility if she absolutely needs $$.
For those without a retirement savings account set up yet, a tradition IRA and it’s withdrawal age requirements would be more appropriate.
Please, talk to an tax professional about doubling up retirement savings (i.e. contributing to both an IRA and 401(k)), as there’s some fine print contribution limits etc..
But it’s worth setting up, I’ve found it helpful to have tax penalty rules between me and my retirement $$.
Countdown till retirement—it’s on!
(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)