Question

1) This week, you learned about traditional IRAs and Roth IRAs. What are the unique features...

1) This week, you learned about traditional IRAs and Roth IRAs. What are the unique features of a Roth IRA? Why is the Roth IRA worth considering, particularly when you begin to save for your retirement early in your professional career?

2) Many of you will participate in an employer’s 401(k) profit sharing plan once you begin work after graduation. This plan allows you to make pre-tax deferrals into the qualified plan, often with employer matching dollars. What does “employer matching” mean? Why is so important that you defer enough into the 401(k)?

Homework Answers

Answer #1

1) Unique features of Roth IRA are:

  • You can’t contribute to a Roth if your income is too high.
  • There are no required minimum distributions (RMDs).
  • There are no taxes or penalties when you withdraw your contributions.

Roth IRA is worth considering in early stage of life as:

  • Power of compounding will be greater if you start from the early stage.
  • With a Roth IRA, your contributions aren’t tax-deferred, but your withdrawals at retirement will be tax-free.

I can only answer 1 question at a time so I am solving question 1. Please do rate me and mention doubts in the comments section.

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