Prepare for a worry-free future

Roth IRA retirement account that you open on your own at online brokerage firms. By IRS rule, in 2010 or beyond, you could contribute 5000$/year. After the tax contribution and tax free withdraw after 59 and 1/2.
the Regular IRA rule almost the same with Roth IRA, THE DIFFERENCE is the regular IRA is contributed before tax contribution or tax defer contribution and you have to pay TAX after 59 and 1/2

So let me make simple example, You work for XYZ with income of 60k/year. So you decide to save for your retirement. If you decide to contribute 5000 to regular IRA , so now your taxable income is 60k-5k=55k, So your income will be taxed at 55k not at 60k. The other case, if you decide to contribute to Roth IRA at 5k. You will pay the income tax of 60k, your contribution to your ROTH IRA is a net income, but after 59 and 1/2. Everything in the Roth IRA is yours, tax free.

About 401k, is your employer sponsor retirement account. By IRS rule, the maximum you could put in for the tax year 2010 is 16,500.00. some companies give you the matching contribution.
and TAX DEFER and you have to pay tax after 59 and 1/2.
Example, your income is 60k, if you decide to contribute to your 401k, if you put in the max 16,500.
Your taxable income is 60k-16.5k==43,500. You pay your tax on 43,500.00 of your income.

In a traditional IRA, contributions are tax deductible when they go in, but withdrawals are taxable. In a Roth IRA, contributions aren’t deductible, but withdrawals aren’t taxed.

A 401K is similar in many ways to an IRA, but is through your employer, while an IRA is set up independently.

A 401k is an employer-sponsored plan where you, the employee, can choose to make elective deferrals, pre-tax, to the Plan. If your compensation is $40,000, for example, and you decide to put away 10%, $$4,000 of your compensation will be put in your 401k, AUTOMATICALLY, and you’ll pay income tax on only $36,000. The contribution limit is $16,500, although your Plan may have a percentage (%) max, too. There MAY be an employer “match” as well. A typical match might be “50% of the first 6%” which would equate to an additional $1,200 added to your Plan. There will likely be a vesting schedule regarding the employer contributions, which means, the employer contributions will be 100% vested (all yours) after a period of time outlined in the Plan. Withdrawals down the road will be taxed as ordinary income.

Traditional and Roth IRAs allow contributions of up to 100% of compensation or $5,000 (if you’re under age 50), whichever is less. Traditional IRA contributions MAY be tax deductible, depending on your income and whether you participate in a company sponsored retirement plan. Roth contributions are not tax deductible (funded with after-tax dollars), but withdrawals after five years (assuming you’re at least age 59 1/2) are tax free. Contributions to a Roth can be withdrawn tax free, anytime.

If offered, go with the 401k. Not only are the contribution limits higher, your deposits to the Plan are automatic (they get there whether you remember to put money away or not), and you may get “free” money from your employer if you stay long enough to be vested.

Hope that helps.

DISCLAIMER: This response has been prepared for informational purposes and should not be construed as specific advice for any individual. Any information has been obtained from sources believed to be reliable but no representation is being made as to its accuracy or completeness. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

the original IRA is a saving plan that allows you a tax advantage(limited) when you work and contribute each year, when you eventually take distribution when you reach 60 it is then taxable as income
the Roth is a savings plan that you can contribute a limited amount each year that has no tax advantage at the contribution but also when you take distribution later on(you have to keep it 5 yrs)
you will not be taxed on the earnings it has made over the years
a 401(K) plan is one your employer will offer you and it will reduce the amount of your taxable income as you receive each pay check,now
any of them will incur a 10% penalty on early withdrawal(59 1/2 years of age), and if you leave the employment where the 401(K) is you may have a choice of rolling over to another plan or take the distribution(with penalty and the income tax for the increase in your gross income for that year)