Comparing retirement accounts

There are several different retirement accounts to choose from. It can be kind of confusing for a person trying to decide what retirement account would work best for them. Each type of retirement account has good and bad attribute. This article compares some of the popular retirement accounts available to people.

401(k)

Many people are familiar with the 401(k) retirement account, or at least they have heard of it before. With the 401(k) retirement account a person's contributions are taken out of their paycheck before the payroll taxes are computed. Many times a person's company may match the person's contributions into this type of retirement account.

Sometimes with a 401(k) a person is able to borrow money from their retirement account before they retire. And a person is able to retire with this type of retirement account as early as age 55. A person using a 401(k) retirement account is able to save up to $16,500 a year and $22,000 if they are 50 and older for the year 2009.

Another good thing about a 401(k) retirement account is that the money is protected from creditors.

Traditional IRA

With a traditional IRA retirement account a person is able to contribute up to $5,000 a year if they are younger than 50 years old. If they are 50 or older they are able to contribute up to $6,000 (2009.) But after a person is 70.5 years old they are no longer able to contribute to a Traditional IRA. If a person chooses a Traditional IRA it may qualify for a tax deduction.

If a person decides to use a Traditional IRA they can take out money for certain things without incurring a penalty. And as soon as they are 59.5 years old they can begin to take out money from their Traditional IRA on a regular basis. When a person is 70.5 they have to take money out of their Traditional IRA.

Roth IRA

A Roth IRA is a bit different from a Traditional IRA. The same amount ($5,000) can be contributed ($6,000 for a person 50 years and older) as with a Traditional IRA but the contributions can be made through April 15-according to the 2009 year.

A Roth IRA does not have a tax deduction but a person can take out money any time they want to without any penalty. After five years, a person can take out their earnings to use it for certain things when they are using a Roth IRA. And when a person takes out the money for retirement it will not be taxed.

A Roth IRA is also different from a Traditional IRA because it does not require that a person take out the money when they are 70.5 and they can also contribute money to their retirement account after they are 70.5.

The income limit for a Roth IRA for singles is $101,000 to 116,000. For couples who are married the income limit is $159,000 to $169,000.

Besides these three options for retirement accounts there are several others. It is important that a person research each of the retirement accounts to find out what will work best for them and for their family. Sometimes what a certain retirement account offers to one person that seems to be a benefit may not be a benefit to someone else. It is important for a person to plan well for retirement so that they will be able to continue living the life they would like to live when they are no longer working.