You have probably heard it on a podcast that focuses on money and investments topics: IRA and Roth IRA. Many are only familiar with what most employers offer which is a 401k. Something to note-a Roth IRA and a traditional IRA are similar but not the same. Today we talk about whether you should get a 401K plan or an IRA. Regardless of which one you choose, retirement planning is important and offers many benefits in the long run.
Why get a 401K
Is a 401K for you? A 401K is simply an employer-sponsored deferred-income plan. You have some control as far as how much you want to contribute from your paycheck as long as you continue to work full-time. There are, however, limits as to how much one can contribute based on age groups. One of the major benefits from a 401k is the ability for the employer to partially or completely match those funds. When this happens, it is called maximizing your contributions.
Some cons about 401K’s include: taxations occurring when funds are taken out at the retirement age, get penalized for withdrawals done before retirement and only available through employers.
IRA Explained
What are other options you may ask? Well, there is the IRA retirement planning option that allows for tax-deductible contributions. The IRA (Individual Retirement Account) can be controlled as far as opening an account in the case that you are maxing out your 401k and choose stocks (if any) to invest in. These stocks are for retirement planning purposes only and include investments like loans or real estates.You must also familiarize yourself with meeting the criteria requirements when contributing as well as be aware of the cons which includes declaring withdrawals in taxes. Both IRA and Roth IRA’s share in common the amount of money you can contribute per year which is a maximum of $5,500 if under 50 and $6,500 if over the age of 50. Just like 401k, there is also a risk of added penalty and rates if removing funds before retirement, but some exceptions may apply.
Weighing Down the Options
When it comes down to it, both 401k and IRA work as retirement planning for savings. Keep in mind that 401k is employer friendly with no income limits. An IRA on the other hand requires you to find out how to sign up privately and has income limits. They both carry different types of tax benefits but it will ultimately depend on your age, how much you want to contribute and how fast you want to grow without taxes weighing you down.
Care Financial is a privately owned and operated business providing families, individuals and businesses with comprehensive wealth management strategies. Contact us online at www.carefinaicialonline.com or call us at 251-633-7122.
