|Here's my little guy, "saving for a rainy day." You better believe once he can start earning money we'll help him set up a Roth IRA.|
Which one's better? It's hard to say one's better than the other. The 401(k) has the advantage of already being set-up for you. Also, employers frequently match your contributions (free money!!!!!!) But IRA's are very simple to set up. Since contributions to each are limited, in a perfect world you would have one of each and max out your contributions to both your 401(k) and to your IRA.
How much can I contribute to an IRA? Let's keep it basic. If you're under fifty, generally $5,500 per year. If you're over 50, generally $6,500.
How much can I contribute to a 401(k)? Again, we're staying basic. If you're under fifty, generally $17,500 per year. If you're over 50, generally $23,000. If your employer matches, your contributions plus theirs can't be more than $51,000 or how much you made that year (whichever's less).
Pop quiz! Which code section in the Internal Revenue Code discusses 401(k)s? 401(k). Now if only memorizing all the code sections were that easy (not going to lie, I had to memorize hundreds of code sections for this tax competition). What's that, you say? You didn't know there were tax competitions? Don't worry-- I think the only people that know about them are the participants and their parents. But, for the record, we won 1st place in the nation. Just thought I'd throw that out there...
|My moment of glory. Don't judge. We are also trying to coerce the smart girl to the right of me to do some guest posts.|
|I promise you, these tax things are real and awesome!|