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 choice between 401k IRA accounts may seem to lean more heavily towards 401k plans, but it will depend on each individual. Some people may be self-employed, work through contracts only, or be at a company that is not large enough to offer 401k investment plans. In those situations an IRA is really the only choice. Others who are very interested in investing money and exploring different financial opportunities may prefer an IRA because there is a wider range of choices available in terms of where to put money.
The differences between 401k IRA accounts are not great, but there are different reasons for choosing one over the other. Talk to a financial advisor with experience in this area in order to get a recommendation as to which account would be most appropriate for your needs, or if having one of each could be an option as well. Most answers will depend on your working situation; yet regardless, the goal is to find the best way to make the most money for when you are retired.
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