a) What is your opinion about 401(K) and IRA? b) How taxes can impact your retirement...

a) What is your opinion about 401(K) and IRA?

b) How taxes can impact your retirement income and how can you stretch your retirement funds?

Solutions

Expert Solution

Answer(a): 401(K) Plan- It is a tax qualified retirement plan in USA. It makes the employees eligible to make tax deferred contributions from their salaries. It is sponsored by the employer. With 401(K) plan, you can control how your money is being invested.

IRA- It is individual retirement account. This is the individual retirement arrangement.

Traditional IRA- Contributions are tax deductible but withdraw is taxed at their ordinary income tax.

Roth IRA- Contributions are not tax deductible but qualified distributions are tax free.

Answer(b): Tax impact-Taxes are not paid until the money is taken out from the 401(K) plan. There are many tax deductions, tax advantage and tax credits on retirement income. One can stretch its retirement income by contributing more amount in 401(K) plan and IRAs. He can also take pension plans and when he gets the amount at the time of retirement, he can make a fixed deposit to earn the interest that will be his/her regular income.

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