Whats the difference between a 401(k), a traditional IRA and a Roth IRA?
All three are protective shells that allow your money to grow tax-free. But there are substantial differences among them. • Before-tax contributions: With a 401(k) plan, you may contribute up to $11,000 before taxes in 2002, which reduces your income for tax purposes. (The 2001 limit was $10,500.) Keep in mind that your plan may limit your contributions further depending on circumstances. You can only contribute a maximum of $3,000 in 2002 to a traditional IRA, and your contribution may not be tax deductible if you also participate in an employer-sponsored retirement plan (depending on your income level). You are also limited to a maximum $3,000 contribution to a Roth IRA in 2002, and that is not deductible at all. You may have more than one IRA (traditional and/or Roth), but your total contributions to all of them may not be more than $3,000 for 2002. • Tax-deferred growth: In all three cases, the interest you earn is not taxed while in the account, so your investment keeps growing ta
