Sussing out your options and plotting a course for retirement savings can be daunting. But more options means you can tailor your savings to your needs. © AndrewWilliam/iStock The most common source of retirement income is Social Security. In fact, 86 percent of Americans 65 and older depend on their social security checks every month. For 36 percent of retirees, it's their primary source of income [source: Brandon]. Yet in 2014, the average payment for individuals was less than $1,300 [source: Brandon]. And only slightly more than 40 percent of retirees have some sort of pension plan [source: Brandon]. With statistics like these, what do currently working employees need to do to build a solid nest egg for their own retirement? Traditional 401(k) retirement plans allow employees to contribute pre-tax dollars to their accounts. This reduces their gross income and, consequently, their current tax load. In 2006, employees were given yet another financial retirement choice: the … [Read more...] about Why are companies allowing people to choose between traditional and Roth 401(k)s?
401k plan how does it work
Would you get a bigger nest egg with your traditional 401(k) or a Roth 401(k)? © Peter M. Fisher/Corbis Though retirement may seem a long way off, you may need to decide now whether you should contribute to your employer's traditional 401(k) or Roth 401(k) plan. It'll take some information and some prophecy. First, understand the differences between the plans. Next, take an honest look at your current financial state. Finally, peer into the future to predict what your assets will be when you're ready to start withdrawing retirement funds. With a traditional 401(k) retirement plan, you deposit nontaxed funds, and the earnings are also not taxed while you're building your nest egg. You pay taxes only when you take out money from your account. At that point, both contributions and interest are hit. If your employer also contributes, taxes are also postponed on those amounts. In a Roth 401(k), any contributions you make have already been taxed, though additional income --such … [Read more...] about Should I contribute to a Roth 401(k) or a traditional 401(k)?