The difference between the Roth IRA and the 401(k) really depends upon the type of money being invested (i.e., qualified vs. non-qualified money). Money that has already been taxed can only be invested in a Roth. Money that is contributed on a pretax basis is done in a 401(k).
There is a misconception that the Roth outperforms the 401(k); however, historically they both perform the same assuming the interest rate is the same. Let’s say we start off with a $150,000 investment earning 10%, which means your money will double every 7.2 years according to Rule of 72 ($150,000 doubles at $300,000). When you retire and withdraw 10%, which is $30,000 per year, you now have pay income tax (about another 10% or more), so now you’re at a net of $20,000 per year in income. That may or may not last the rest of your life.
Now let’s say you start off with the same $150,000 in a Roth. It will grow to $200,000 tax free at the same 10% percent. So now you retire and withdraw 10%. In this scenario, you are withdrawing the same $20,000 per year as the 401(k)!
At Benefits To Go, we have an answer for both long-term investment strategies. We show each investor how to achieve substantial gains without realizing market losses, and how to never outlive their money.
Interested in learning more? Call or email our office today to schedule some time with one of our advisors. We look forward to hearing from you!
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