You understand the importance of saving for the future, but choosing the right retirement account for your needs may not be so straightforward. Working with a financial planning specialist will help you take control of your budget and investments, setting you up for success in retirement. At Central Financial Services in Lincoln, NE, their specialists want to help you understand the funds available to you.
Financial Planning: Understanding a Roth 401 (k)
What Is It?
A 401(k) is a type of retirement account that allows you to contribute a portion of your income each month for retirement savings. Traditional 401(k)s allow you to allocate funds without paying taxes on the amount set aside. Once you reach 59 ½ years old, you’ll be able to receive distributions from the fund, but you will have to pay taxes on each distribution.
A Roth 401(k) helps you plan for the future as well but requires you to pay taxes up front on every contribution. While this may seem like a downside, it means any distributions you receive from your Roth 401(k) upon retirement will be tax-free. This gives you a clearer idea of your monthly financial situation once you’re no longer working.
When Is Roth 401(k) Right for You?
If you’re starting a retirement fund at a young age, a Roth 401(k) may be a better option. Since you’ll likely be earning a smaller wage at the beginning of your career, your tax liability will be lower on the funds you contribute. Though your tax liability will be higher over the course of your working life, it will give you more disposable income when you’re finally ready to retire.
Whether you’re just starting out with financial planning or want an experienced advisor to help you revamp your retirement strategy, contact the team at Central Financial Services today. Visit their website for more information and call (402) 423-4022 to schedule a consultation.