What is 401(k) plan?
401(k) plan is a scheme for employees for the purpose of salary reduction. It can be done on post-tax/ pre-tax basis. DC Fawcett Real Estate The benefit of this scheme is the employees can include profit-sharing feature.
The total amount accumulated is tax-deferred. The salary contribution has a limit which is given by internal revenue service (IRS). The maximum amount that can be contributed is 18,000 dollars. 12 percent of the salary can be saved which is considered to be low for retirees.
There are some hidden costs like trustee fee, book keeping fee and some legal fee. It is an illiquid form of asset as the money is locked and cannot be withdrawn until the investor reaches a particular age.
There is forfeiture if the money is withdrawn earlier before the contract period terminates. There is only one allowance that is the investor is allowed to withdraw money under certain situations from this scheme provided he or she pays back within the given deadline.
Since 401(k) is alone not sufficient for retirement life, IRA (individual retirement account) should be opened and funds should be deposited every now and then.
How IRA can be used?
DC Fawcett put forth his reviews on how to use IRA and nominating the beneficiary. You can nominate a person who will be eligible to receive the fund after your demise. It is called adding an IRA beneficiary.
IRA is the outcome of 401(k), because when you are an employee the company offers 401(k) scheme which becomes IRA in the future. It is called rollover. In this process, the funds are transferred from 401(k) to IRA.
The primary beneficiary receives the funds being the first nominee. Only if primary beneficiary passes away first, then the IRA is subjected to probate process, the decision is taken by the court.
The judge will give the verdict about to whom the money should be given to. This process is time-consuming and expensive. To avoid this, the contingent designation power is used, where second beneficiary is nominated who will receive the funds if first one passes away. Adding multiple beneficiaries is not possible.
How Roth IRA influences real estate?
DC Fawcett explains the positive aspects of Roth IRA to the investors. Roth IRA is a better investment strategy than 401(k) retirement plan. The best thing about the scheme is it is tax-free.
The investors who want to invest on real estate in the retirement period by buying a property or living in rented apartment needs money. For this Roth IRA is recommended.
Apart from that, the other benefit is self-directed Roth IRA offers the opportunity to invest on real estate or gold which is a form of expanding the investment boundaries.
Investors are allowed to withdraw money without forfeiture. So when you are facing a financial crisis, this money can save you from getting disabled completely. There is no age bar to withdraw money which is yet another advantage.
This scheme is scam free, so investors can take up this plan to use for retirement purpose.
From this review, we infer that Roth IRA is more flexible and has more advantages than 401(k). To learn more about retirement plans, visit DC Fawcett virtual real estate investing club.
DC Fawcett helps people to learn what’s working best in the real estate market and how to grow in real estate investment business. He does this job efficiently with his proprietary virtual real estate investing systems.