When you are comparing the different retirement plans, one thing that you need to consider are the tax advantages. You want your money to work hard for you, rather than having a bunch of it eaten by penalties and fees before you even get to touch it. This is why, regardless of which plan you go with for retirement, the 401(k) or the Roth IRA, you need to be 59 ½ to make that happen, rather than trying to take it out earlier and spending a ton on fees and other penalties.
Unlike with the Roth IRA, the 401(k) plan is going to give you some tax benefits right now. Your contributions go in tax-deferred, which means that you will have a lower taxable income right now and you can get a nice tax break right now. If you are looking to get some reward for the hard work you put towards investing and saving for the future and you need to lower your taxable income a bit, then using the 401(k) can be a smart way to get this done.
However, there is a catch with this one. You will get taxed at some point when you choose to go with this method. When you retire and decide to take out some of the money for that time, then you will pay taxes on the money that you use. This is going to include taxes on all of your contributions, the contributions that your employer made, and all the growth that you made there over the years.
This can end up being quite a bit in taxes. But if you were getting an employer match along the way, it could still get you ahead a bit. Your financial advisor will be able to discuss some of the best plans to determine which retirement plan makes the most sense for you and some of the ways that you can keep your tax bill down, no matter the retirement plan you choose.
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