401k Vs IRA
401ks and IRAs are the two most popular ways of saving up money for retirement. Each one of these two plans has their advantages and disadvantages. But which plan is actually the better plan?
Well, let’s take a look.
The 401k maximum contribution limit is much higher than the IRAs. That makes a 401k a better plan if you have a lot of money to invest with. The big different is how much they let you contribute could be pretty important in the future.
There is also another big advantage for a 401k, and that is that some employers will help you out by depositing monre money into your account for every $1 you invest. 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. Because your employer does not organize an IRA it doesn’t come with this added benefit.
Even with all of those advantages of 401k plans there are some times when IRAs may be the best option. 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.
In a Roth IRA you will get taxed on any money you deposit, but it will be able to grow tax free and when you take it out you will also not have to pay any taxes on it. You may be in the lower tax bracket when you retire, or you may believe the tax rate will go down. If that is the case then this may be a better option.
There is one other advantage of an IRA and that is that it may allow you to invest your own money yourself. This gives you the ability to seek out a higher growth rate.
There is one big disadvantage to both of these 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.
Tags: 401k or IRA, 401k Vs IRA
Leave a Comment