Should I Invest in a Roth IRA or 401k?
- The 401k is a strong investment option. People can invest up to $16,500 annually in a 401k, compared with just $5,000 in a Roth IRA. The money invested is not considered income, which can put an investor in a lower tax bracket and lead to significant returns each year. In some cases, a business will contribute to an employee's 401k, increasing his investment amount.
- Those who put their money into Roth IRAs have more flexibility with how their money is invested. 401ks usually do the investing for the client, while Roth IRA investors can choose to put their money in stocks, real estate or other ventures. Roth IRA investments can also be taken out early, making them suitable emergency funds if the need arises.
- The 401k is the superior option for people who want to benefit most from their investment. The higher annual investment limit and potential to end up in a lower tax bracket means more money put away each year. Add in the possibility of contributions from the employer, and the 401k is the stronger investment option.
