No matter how near or far off your retirement is, the tax advantages of an Individual Retirement Account can be too great to pass up. Using both an IRA and an employer-sponsored plan (such as a 401(k) if you have access to one) provides the opportunity to invest more for your retirement.
- Immediate tax advantages; contributions may be tax-deductible and earnings remain invested tax-deferred
- Taxes are due at the time of distribution/withdrawal
- No maximum income limits for eligibility
- Though contributions are made after-tax, earnings remain invested tax-free
- Withdrawals are tax-free in retirement; there is no tax on qualified distributions after age 59½
- May be more appropriate for those with growing income potential (who may be taxed at a lower rate now versus in retirement)
There are four different actions you can take with assets invested via a previous employer’s retirement plan. These include leaving the assets where they are, moving the assets to a new employer’s plan, cashing out, and rolling the assets over to a Traditional or Roth Individual Retirement Account (IRA).
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