410k IRA Explained

 

401k IRA. These two words are important when considering your sources of income once you are retired. The days of relying on social security to provide you with income during your golden years are long gone, and you need to start putting aside money for that time in your life when you will not be able to work. A 401k is a retirement plan very similar to an Investment Retirement Account (IRA) but there are differences and knowing what they are will help you maximize your potential to earn a significant amount of money.

The main differences have to do with the responsibility of setting up the accounts. With a 401k investment the funds are setup by the employer; with an IRA it is the account owner's responsibility to make sure that investments are done and that they are done properly. A 401k has the advantage of possibly receiving matching 401k contributions from the employer, either a portion or in some cases 100 percent of what you contribute. With an IRA, it is completely up to the owner to fund the account.

The other significant difference has to do with limits. Limits can be somewhat confusing depending on the different types of plans out there, and on the age of the contributor. Generally speaking, a 401k retirement plan will allow those less than 50 years of age to contribute $16500 a year, and those 50 and over to contribute a maximum of $22000. IRA limits are significantly lower; $5000 a year for those under 50, and $6000 per year for those 50 and over.

The 401k IRA choice may be a no-brainer for some people. Those who work at a large company and who get high 401k contributions from their employer would have little reason to go for an IRA. People who don't have such a situation may have no other choice but to get an IRA so they can effectively save for their retirement. And in terms of flexibility, some individuals may prefer the advantages that an IRA offers in terms of allowing investments in a wide range of sources. 401k plans tend to have more rules when it comes to moving your money around and choosing where it goes.

The 401k IRA choice may not be a difficult one for most people, especially for those who have a good employer who routinely makes matching 401k contributions and wisely invests their employees' money. Once you change jobs or if you are looking for more options in how to maximize your earnings for your retirement, then investing in an IRA may work out to be a better deal for you financially.

Related topics about 401k ira

401k Plans
The main benefit that a 401k plan provides is tax breaks. Before there was a 401k investment option, most taxpayers had little choice but to pay higher taxes on the money they tried to save.

401k Retirement
There is no point in saving a lot of money in your 401k retirement plan and then losing some of the profit you have made by making an early withdrawal. The plan is there for retirement purposes, not for any other reason.

401K
Most 401K's allow you to start withdrawing funds from them without incurring heavy tax penalties once you reach 59 ½. If you begin withdrawing before that they you are going to usually incur a 10% tax penalty on top of the regular tax that is paid each time you withdraw.