The choice of the plan depends on a variety of factors, including the employer's objectives, the employee's retirement goals, and the desired level of investment risk. Here's a detailed comparison of the two: Plan Structure 401(k) plans are a type of defined contribution plan, which means...
Pensions, also known as Defined Benefit plans, have become rarer as companies force their employees to save for themselves mainly through a 401k, 457, 403b, Roth 401(k) or IRA. These savings vehicles are also known as Defined Contribution plans. But as we all know, the maximum amount you...
Roth IRAs are taxed at the highest tax bracket—the marginal rate—whereas regular IRAs are taxed integrated over all brackets—the effective tax rate. If you read a comparison of Roth versus regular IRAs without reference to the “effective” versus “marginal” rate, the author is either igno...
The more traditional way of comparing these options is to use life annuity rates to make the comparison. In other words, calculate the assumed growth of the lump sum as you have done, but then use a life annuity rate to calculate the monthly withdrawal. Usually this is more accurate, as ...
As you look at the various pension alternatives, consider them in comparison to one another. Sometimes the company subsidizes the survivor benefit to a degree, making a joint and survivor annuity more beneficial than either the single life or the cash-out option. In addition, sometimes for an...