When it comes to investing for retirement, there are multiple tax-advantaged accounts to choose from. It can be confusing to pick which one is best, especially when they each have their own pros and cons.
To help you out, three Motley Fool retirement experts each made the case for one of three common types of retirement accounts: 401(k)s, traditional IRAs, and Roth IRAs. Check out the arguments for each and see which one seems like the best fit to meet your needs.
Katie Brockman: The 401(k) is a type of employer-sponsored retirement account. When you invest in a 401(k), you get a tax deduction on your contributions upfront, and your investments grow tax-free. Once you retire and start taking distributions, then you will owe income taxes on your withdrawals.
The 401(k) can be an incredibly powerful investing tool, and there are several advantages to investing in this type of account.
For one, you may be entitled to receive employer matching contributions. Not all 401(k) plans offer matching contributions, but if you do have access to them, it’s wise to take full advantage of this perk. Matching contributions are essentially free money, and they can boost your savings by thousands of dollars per year with zero effort on your part.
For example, say you’re earning $50,000 per year, and your employer will match your contributions up to 3% of your salary. That amounts to $1,500 per year in matching contributions. If you were earning an 8% annual rate of return on your…