401k vs Roth 401k vs IRA vs Roth IRA | BeatTheBush

Ever wonder what the differences between a 401k, Roth 401k, IRA, and Roth IRA are? Roth requires you to pay tax up front whereas 401k and IRA requires you to pay tax when you take the money out much later. That advantages of a Roth 401k or Roth IRA is that the money that gains from compounding is not taxed. In a 401k however, you get to put in a larger sum that can help in compounding but you have to pay taxes when you take it out. Your tax bracket when you retire as compared to when you put the money in matters a lot in which one you should lean towards. Its of course still good to have options later on so having both with different weights is a great idea.

How’s it goin everybody this is beat the bush there are a lot of retirement accounts out there including a 401k roth 401k ira and roth ira now in this video i’m going to tell you what the differences are between each of them first of all all of these are retirement accounts and whenever you see roth in front of it it means you’re contributing after-tax dollars

And all the appreciation is actually tax-free 401k is basically an employer sponsored plan if you’re an individual not working for anybody then you can’t get a 401k iras on the other hand has income limits it’s better well suited for people who don’t have a 401k plan with their employer so they can go and get these retirement accounts on their own ira by the way

Stands for individual retirement account roth is named after a guy named william b roth who’s a republican senator who sponsored this program now here’s a little chart with all those retirement plans including the hsa on the very end because this should be part of your retirement savings strategy you can see 401k and roth 401k has an $18,000 contribution limit

Whereas iras only have 5,500 hsa has 3400 and so on and so forth there’s a catch-up contribution six thousand six thousand iras and roth iras has one thousand hsa also have one thousand but you gotta be 55 to contribute and not 50 like all the rest now like i said before anything that has a 401k in its employer sponsors so you may get employer matching here employer

Matching goes anywhere from three to six percent or so and if you happen to be able to contribute to a roth 401k plan they’re not going to put after-tax dollars into your roth 401k for you they’re going to match it and then put it in the 401k which is actually before tax let’s say you’re going to put $1,000 in over the entire year you put $1,000 in they’re going to

Match it with $1,000 and put it in the 401k however your $1000 go in the wrong 401k which is tax or let’s say it’s 25 percent so only $750 go inside your roth 401k now the 401k the ira and the hsa is a good way to put pre-tax money in there so it’s a good way to reduce your effective in come so if you’re in a really high tax bracket is really good to contribute to

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These accounts so that you can reduce your effective income that’s taxed let me mention right now the limits is not eighteen thousand four 401k and eighteen thousand four roth 401k is the combination of both of them is eighteen thousand however you can contribute eighteen thousand and then another five thousand five hundred in the roth ira and then another three

Thousand four hundred in an hsa put sex money is for the roth 401k and the roth ira where after you get taxed then you put that money in so let’s say you earn a thousand dollars you get taxed at a twenty five percent rate then you get to put seven hundred fifty dollars inside these roth 401k or roth iras now the important distinction here is that yes 401k is not

Taxed when you put it in but when you take it out whatever time later it is taxed then go for these retirement accounts you’re going to get taxed on it no matter what for a 401 k you don’t pay tax now it’s be heard so that’s why when you take it out you still have to pay taxes whatever tax bracket you happen to be later on when you retire brought for 1k however

Your tax today and the appreciation later on in the account it’s not taxed so you put in money that’s already taxed whatever that grows that part that increased is not taxed when you take it out hsa is a funny beat because when you put money into it you can spend it on medical expenses even before you retire and it will not be taxed so in that sense that money

That you’re using for medical expenses has never gotten taxes it’s great before i get any deeper let me talk about one very interesting point here you can actually convert a 401 k into a roth ira now when you do this rollover roth ira is taxed much that means when you do the conversion you actually have to pay taxes on the 401 k now let me mention this way where

You can actually extract money from your 401 k to use it now what you can do is roll over your 401 k if you’re not employed with that company anymore you can roll it over into a roth ira however when you roll it over let’s say there’s ten thousand dollars in it you have to pay taxes on it whatever tax bracket you are however once that money is in your roth ira and

You keep it there for five years you can take the principle out which is the amount that you roll over right you can take that principle out without any penalty the penalty for taking money out of a roth ira is actually ten percent so you actually get around this ten percent penalty if you roll it over let it sit for five years and then take the money out so this

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Gives you an access to retirement money even before you actually retire so let’s say over ten years you put ten thousand dollars in a roth 401k every single year so then you have ten thousand dollars of principle that you put in however this is invested so maybe it’s one hundred sixty thousand dollars so that one hundred thousand dollars you can actually take out

Tax-free and without penalty so a lot of people do not know you can access the roth accounts money so easily and without penalty as well of course once you take it out it’s hard to put back in because you have a yearly contribution limit however that money thing your roth account is actually a really good thing because all the appreciation that happens to it you

Can take it out tax-free and penalty free as long as after your retirement age this next chart shows the income limits you can see an ira there’s an income limit to it and if you exceed one hundred thirty three thousand dollars for a single filer then you cannot contribute to an ira however for 401k there’s no income limit this phase-out thing is really when you

Hit that income limit the maximum amount that you can contribute to this type of count starts to go down all the way to zero when you hit the hard limit of one hundred thirty three thousand dollars there’s no income limits for 401 k roth 401ks or hsa so these are really good for really high income earners most accounts you can withdraw after fifty nine and a half

And you won’t have to pay a penalty now penalty is different from income taxes for 401k and irs when you withdraw from it you still have to pay income taxes you just don’t have to pay a penalty after you reach that age for a roth 401k and the roth ira you don’t have to pay income taxes because you already paid it when you put money in and you don’t have to pay

Penalty so the little difference here is that roth iras the withdrawal age is 59 whereas hsa the withdraw age is 65 for an hsa if you withdraw money from it other than for medical stuff it’s really hard you’re going to have to pay income taxes on it and a 20% penalty all the other retirement accounts requires a 10% penalty now some of these retirement accounts allow

You to withdraw from it penalty free not income tax free and these qualified things that you can do includes medical expenses that exceeds 10 percent of your income if you do rollovers like i said if you roll over to a roth ira you still have to pay income taxes on them you just don’t have to pay the penalty if death occur disability occurs if you pay for higher

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Education expenses then yes you still have to pay income taxes but you don’t have to pay the penalty of 10 percent for a 401k and a roth 401k there is a required distribution age at 70 and a half so you have to distribute some money starting that age or else they give a very very hefty penalty of 50% for the amount that you fail to distribute roth ira is generally

Better for people that are going to be in a higher tax bracket because if you’re going to be in a higher tax bracket later on then it’s good to not have your money tax then however if you think you’re going to have a lower tax bracket it’s better to contribute to a 401k because right now you can not have to pay a taxes in a really high rate let’s say you’re at 28%

And later on when you retire you’re going to spend a lot less loo then you’re going to be about fifteen percent twenty percent tax bracket so then when you take the money out you’re going to have to pay less a percentage per taxes later on for a 401 k roth ira is great for lower-income earners words are in a lower tax bracket let’s just say you’re starting out in

Your career where you only have fifteen twenty percent tax bracket and you’re over here you contribute all this money at fifteen twenty percent tax bracket which is pretty low and then later on at your career progresses or maybe later on when you retire you’re still going to earn a lot more then you’re going to be at a higher tax bracket which is great because if

Then you still have your roth ira then you can take money out tax-free and you don’t have to pay at that higher tax bracket there year at later on so that’s all i have for today i hope that wasn’t too confusing don’t forget to give me a like on this video comment down below let me know that this made it more clear for you if you’re interested in supporting this

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401k vs Roth 401k vs IRA vs Roth IRA | BeatTheBush By BeatTheBush

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