There are
two distinct retirement plans that can give you a return on your investment and
an income for the future. One is an IRA and the other is a 401K. Both have
benefits for savers, but there are also differences. When discussing the
advantages of an IRA vs 401K plans, look to maximum contribution limits,
individual vs employer plans, investment options, and matching employer
contributions.
Maximum
contribution limits constitutes the differences between the two retirement
accounts. Each account has a maximum you can contribute. A 401K allows you to
contribute more to your account every year than does an IRA. As an example 401K
contribution limits are $15,400 per year or $22,000 a year if you are over
fifty. You can only contribute a maximum of $5,000 or $6,000 a year to an IRA
account.
Another
difference with IRA vs 401K is who offers these accounts. You get 401Ks from an
employer but with an IRA you need to set it up on your own and manage it by
yourself. Self-employed individuals can set up solo 401Ks, but the majority of
401K plans are through employers and you can take advantage of matching
contributions from your employer. In addition to the money you directly
contribute into your 401K is the employer’s contribution to this account. An
IRA account does not have matching contribution provisions.
IRA vs 401K
plans do have various security and investment options. You can put the funds
into bonds, stocks, or mutual funds. IRAs have more investment choices, but
401Ks only have a few types of secure investment sources where monies are
stored.
To better
understand IRA vs 401K, you need to know that there are two types of IRAs;
traditional and Roth named after the late congressman who set up the fund. The
Roth IRA eligibility has an income limit of $120,000 a year for individuals and
$175,000 for couples. If your earnings become higher than those limits you will
no longer be able to contribute to a Roth IRA. There are no income limits when
contributing to a traditional IRA. Both IRA plans have a yearly limit of $5,000
or $6,000 contribution. Roth IRAs will be taxed upon contribution while
traditional IRAs are taxed at withdrawal. The traditional IRA vs 401K carries
the same 10 percent early withdrawal penalty but a Roth IRA can be withdrawn
any time after the fund has sat for five years. In order to determine the best
IRA accounts for you, add up the cost savings between early withdrawal and tax
penalties and taxed contributions.
If you are
looking to maximize your retirement dollars, a no fee Roth IRA can be ideal.
You have the option of contributing up to $5000 in this IRA and if you find the
right broker you will have no set up or administrations fees for a period of
time. IRA vs 401K plans provide you with retirement security, but if you are
looking for no-age limit withdrawals, and the opportunity to invest in
multitudes of funds one type of IRA is best. If you are not good at saving,
direct contributions from your paycheck into your 401K plan can be ideal.
By InvestmentAdvisorTips.com
By InvestmentAdvisorTips.com
