One of the easiest ways to lower your tax rate is through an Roth IRA. The IRA or individual retirement account is a way of saving money for retirement years. The money that is placed in an IRA is not taxable income for the year in which it is earned, but will be taxed when cashed in. The rules that raise the limits of money that can be added to both Roth and traditional IRAs have been extended through 2010.

If you work for an employer who offers a 401k plan, this plan can also be used to lower your tax burden. You will need to act quickly for the plan to work to lower taxes as your contributions are made as a payroll deduction from each paycheck. Workers are limited to a ten percent contribution, but your employer may add even more funds through an employer-matching program. Taxes on the money added to the plan are not paid until withdrawn. If you leave the employer, then your are no longer eligible for the program, however a 401k rollover allows you to convert money you receive from the plan into an IRA to prevent paying taxes until retirement when you will be in a lower bracket.

IRAs and 401ks are great ways to lower your taxes for 2010 while planning for your future retirement. If you have questions about these plans you should speak with your accountant or tax attorney.

The first fund in your retirement portfolio should be a 401k account. It is a great tax shelter that was designed by the government. You contribute money, pre-tax and it grows until you are ready to tap it. You can do this when you retire or you turn 70.5, which ever comes first. A reason to wait until you are over 70 is the tax implications. The longer you wait, the lower your tax rate will be when you begin to draw the money.

This article will help you understand your 401k account and how to roll it over into a new account when you change jobs. A 401k rollover is not complicated but when it comes to money, people’s brains kind of shut down. Let us say you are taking a new job with a new company. You have $20,000 in your current 401k. Your HR department will ask you to fill out a simple one-page form and the money will go to a 401k rollover account. When ready, the money will transfer to your new 401k plan. All you really have to do it direct the new account in how to diversify the money. In other words, how much of the 20k goes to aggressive growth funds, bond funds and money market? You want a diversified portfolio and depending on your age and risk tolerance, you can decide how much goes where.

Some people prefer to diversify further and roll the 401k to a Roth IRA . A Roth IRA is funded with post-tax dollars, so any additional monies you add to this account will be after tax and you will not get matches from your employer. If you are young, or your 401k rollover was fairly small (under $10,000), this can be a great way to jump start your other retirement accounts. Otherwise, simply plan on funding the Roth separately starting as soon as possible.

Money doesn’t have to be complicated. If you start simple and branch out, the world of finance can be understood. Just take it one day at a time, one concept at a time and soon you will be talking like a pro!

The first option you have with your 401k account is to leave it with your existing provider. Even if you transfer jobs, this can sometimes still be an option. You will lose a degree of flexibility, and the company may have policies regarding how long the account may remain under their administration.

The next option available is to transfer the account to another 401k plan. If you are changing jobs, the transfer from one 401k to another can be quite painless. All that this type of transfer generally takes is coordinating the transfer with the respective account administrators.

In the past decade or two, transfer from your 401k account to a traditional IRA account has become more and more prevalent. This allows you the ability to transfer your funds into a similar tax-advantaged account, but provides you a number of distinct advantages. It is much easier to carry your tax-deferred account through generations in an individual retirement arrangement.

Up until just recently, a 401k rollover to Roth IRA was difficult if not altogether impossible. Although direct transfers were not allowed, creative planners were able to get the funds into the account eventually. This generally required a number of transfers between different retirement vehicles, and ended up being costly and difficult. With new legislation, direct 401k to Roths are possible.

Determining the best way to transfer your funds can be complicated and case by case specific. Make sure that you understand the various options available and make the necessary preparations before attempting a transfer. The IRS allows you only a brief window in which to transfer your funds before they hit you with steep penalties and fees.