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IRA Vs 401K

401ks and IRAs are two different retirement plans you may choose from. Each one of these two plans has their advantages and disadvantages. Which one of these two retirement plans is the best way to go?

Well, let’s take a look.

The 401k contribution limit is huge when compared to an IRA. This means that you are able to save much more with a 401k plan then you would with an IRA. That could be a big difference when it comes to retirement.

The 401k also has one major advantage and that is, some employers will match your contribution. If your employer matches you $1 for $1 and you put in $1,000 then you will get another $1,000 put into your account. There is no opportunity for free money when it comes to an IRA.

The IRA also has a few advantages. Both plans do help you to get tax defered growth, however IRAs have another option. There is one type of IRA which offers an investor another option that may be better suited for you.

You will have to pay taxes on any money that you deposit into an IRA (Unlike traditional IRA and 401k plans), however you will not have to pay taxes on it when you take it out. So if you believe that the tax rate will grow in the future this can be a good way to get around that.

There is one other advantage of an IRA and that is that it may allow you to invest your own money yourself. What this means is that it is possible to get a much higher growth rate then if you had simply invested into a professionally managed 401k.

However there is one very bad part about both of these retirement plans. Both the IRA withdrawal rules as well as the 401k withdrawal rules do not let you take money out early without taking a penalty on it. Of course that is because they are suppose to be for retirement, but it can still hurt a little if you need the money now.

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