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How to Balance Savings Between a 401(k) and Roth IRA

you have both a 401(k) and a Roth IRA, you may wonder which is the
preferable way to add to your retirement savings. As a first
consideration, if your employer offers a 401(k) plan, be sure to
obtain the entire amount of the company’s matching contributions.
Beyond the amount your employer matches, you may want to consider
your Roth IRA rather than adding more to your 401(k).

contrast to a 401(k) plan, a Roth IRA will provide you with much
flexibility during your retirement years. While a 401(k) plan
consists of pre-tax dollars that grow on a tax-deferred basis, and
require you to pay tax upon making withdrawals prior to turning age
71, a Roth IRA is made up of after-tax dollars that grow on a tax
deferred basis for the remainder of your and your spouse’s lives;
there are also tax benefits for your heirs. You can make withdrawals
from the principal without being subjected to penalty or tax.

when investing in a Roth IRA, you do not benefit from the immediate
tax deduction that you receive when you have a 401(k) plan. But as
tax rates increase, your Roth IRA is likely to be more valuable than
the 401(k) because it will be unchanged by the rise in taxes.

your Roth IRA is fully funded, if you can afford to save more, you
could put more in your 401(k), or  you could open a taxable brokerage
account in which you invest in stocks and stock mutual funds.
Following a one-year holding period, these funds are taxed as capital
gain, for which the tax rate is likely lower than the ordinary income
tax rate to which your 401(k) distributions are subject.

To speak with an experienced Virginia elder law and estate planning attorney, call 757-399-7506 or visit

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