IRA vs. 401(k)
Saving for retirement is essential for all working Americans. Even though it can be decades away and hard to imagine during your busy day-to-day life, and regardless of which career path you have taken, it’s just a good idea. Whether your employer offers retirement benefits or not, it’s important to learn what choices are out there and what you can do to save.
401(k): A 401(k) is very common in the workplace for those careers that offer long-term benefits. In fact, this type of plan can only be taken advantage of through your employer. Before income taxes are deducted from your paycheck, a designated amount of money, based on a percentage of your salary, is moved into your 401(k). Since this is an employer sponsored plan, many times the company will match what you put in, up to a certain amount. The money from your 401(k) does begin to be taxed after you reach retirement age and starts to withdraw from your savings.
IRA: An Individual Retirement Account, or IRA, is just that - it can be created between you and an investment firm, and does not require employer sponsorship. There are two kinds of IRA’s to choose from, the Traditional and a Roth. The main difference involves taxation. For example, a Traditional IRA is tax deductible, but while you are in retirement, the money you withdraw from the fund is taxed, whereas a Roth IRA does not allow for tax breaks, but earrings that are withdrawn from the account later are tax-free.
Now that you know a little bit more about the difference between IRA’s and 401(k)’s, you can begin to decide which choice, if not a combination, is right for you! Have any questions about retirement? We are always here to help.