April 4, 2008 7:05PM
Pension, IRA, and 401K
By FOX Business
Question: My company offers a pension plan, but I’m not confident it will be there when I retire. Is there a safety net I can create on my own?
Answer: You’re right to be worried. More and more companies are getting rid of defined-benefit plans like pensions, opting instead for defined-contribution plans like 401(k)s. That means that there’s a very good chance you won’t be drawing down from a pension once you retire.
Many retirement planners and financial advisors suggest a Roth IRA if you want to start putting something extra aside, particularly if you’re an older worker.
“I think the Roth IRA is not recognized enough” Nancy Langdon Jones, a certified financial planner in California, told FOXBusiness.com. “It’s just such a great retirement vehicle.”
Why? The tax structure. When you contribute to a regular IRA account, you can be taxed on your initial contribution and whatever profits are generated over time.
With a Roth IRA, if the account has been open five years and you are older than 60, you can’t be taxed on any earnings from it–only on your initial contribution, which comes from your already earned, non-deductible income. And if you have done well and saved and your net-worth is high, you can leave the money to your heirs – income-tax free.
