401k, IRA, or Roth IRA — Which is Right for You?

Picture yourself on a sunny beach, finally retired and living your best life. What will your days look like? How much will you need to comfortably enjoy your golden years? Planning for a secure retirement takes preparation, and choosing the right savings account is an important piece of the puzzle.

City & County Credit Union is here to help you navigate the world of retirement savings with three powerful options: 401(k)s, traditional IRAs, and Roth IRAs. Let's explore the key differences between these accounts to help you find the perfect fit for your retirement dreams.

401(k) vs. Roth IRA: Key Differences

Confused about 401(k)s and Roth IRAs? Let's break down the basics.

• 401(k): Save pre-tax dollars today, lowering your taxable income. Plus, many employers offer matching contributions to boost your savings! The catch? You'll pay taxes on withdrawals in retirement.
• Roth IRA: Contribute after-tax dollars, so no immediate tax break. But the big perk? Qualified withdrawals in retirement are tax-free! This could be ideal if you expect to be in a higher tax bracket later. Roth IRAs also often offer more investment flexibility.

Roth IRA vs Roth 401(k)

Both Roth IRAs and Roth 401(k)s let you contribute after-tax dollars, so you won't get an immediate tax break. But here's where they differ:

• Roth IRA: This is an individual account you open on your own. Contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free. This is an excellent option if you don't have access to a Roth 401(k) or want more control over your investment choices.
• Roth 401(k): This employer-sponsored option lets you enjoy the tax benefits of a Roth IRA while still benefiting from employer-matching contributions. Essentially, you get the tax-free withdrawal perk of a Roth IRA with the potential free money boost of a traditional 401(k). However, not all employers offer Roth 401(k) plans.

Key Questions to Decide What's Best

Choosing between a Roth IRA, Roth 401(k), or traditional 401(k) can feel like a puzzle. Here are some key questions to help you find the perfect fit:

Will you be in a higher tax bracket later?

Tax rates can change throughout your life. Knowing if you expect your income (and tax bracket) to increase in the future can significantly impact your decision.

If you think you'll be in a higher tax bracket later in retirement, a Roth option might be a wise choice. By paying taxes now at a potentially lower rate, you can save money in the long run and enjoy tax-free withdrawals on your contributions and earnings when you retire.

Do you want tax-free withdrawals?

Consider how you want your retirement savings to work for you. Tax-free withdrawals can significantly increase your purchasing power in retirement.

Both Roth IRAs and Roth 401(k)s offer the advantage of tax-free withdrawals in retirement. This means you'll keep more of your hard-earned money to enjoy your golden years.

Does your employer offer matching contributions?

Free money is always a good thing! Employer matching contributions can significantly enhance your retirement savings. If your employer offers matching contributions, a 401(k) or Roth 401(k) can provide immediate value. 

Next Steps to Open Accounts

Now that you've explored the key differences between retirement accounts, it's time to take action! Here at City & County Credit Union, we've got the resources to help you map your path to a secure future.

Get a jumpstart with our retirement calculators

Let's crunch some numbers! Use our free retirement calculators to estimate your future income, test different savings scenarios, and see how much you'll need to reach your retirement goals.

• Retirement Income Calculator: Estimate your monthly income during retirement based on contributions, rate of return, and inflation.
• Retirement Savings Calculator: Learn how long your retirement savings will last with inflation-adjusted withdrawals.
• 401(k) Calculator: See how much you'll have in your 401(k) at retirement, including employer matching funds.
• Retirement Nest-Egg Calculator: Determine how much you need to save monthly to reach your retirement goals.

Open your account and start saving today

Once you have a plan in place, it's time to take action! City & County Credit Union is here to help you open an IRA or Roth IRA and start building a secure financial future. Our investment team can guide you through the process and answer any questions you may have.