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IRA vs 401(k): Which Retirement Plan Is Right for You?

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By Meghan Belnap

Many employers offer some sort of retirement plan to their employees, whether it’s through an IRA or 401(k), but figuring out which one is best for you can be confusing. The truth is that both are excellent options, but they do have their differences. The key thing to look at when deciding between the two different types of plans is how much money you’re putting into each of them, as well as how easily accessible your money will be in the future if you need it. Here are some additional details about IRAs and 401(k) that will help you choose the right one for your needs:

What Is a Roth IRA?

A Roth IRA is a retirement plan that you can open on your own or through your employer. You invest money into a Roth IRA, which is then put into investments such as stocks, bonds, mutual funds, ETFs, and more. Unlike the traditional IRA, a Roth IRA offers no tax breaks for making contributions. However, unlike with a traditional or SEP-IRA account—or any type of pre-tax investment account—you don’t have to pay taxes on withdrawals from your contributions when you’re 59 years old or older.

What Is a 401(k)?

A 401(k) is an employer-sponsored retirement plan. As its name suggests, you put money into it through regular pre-tax contributions made by your employer. The money goes into your account right away, but you can’t withdraw it all for at least five years after you first contribute. If your employer offers matching funds, you’ll want to keep that in mind when deciding how much money to put in. The more they match, the more sense it makes for you to invest.

Choosing Between an IRA and 401(k)

Retirement is not something that anyone wants to think about, especially in their 20s and 30s when there are so many other responsibilities. Yet, if you start planning for retirement now, you’ll be in much better shape than those who wait until they can no longer work to begin saving. Consider working with a professional, like those from TFG Wealth Management, to help you make the most informed decision about your future.

If you’re looking to save up some money for retirement, an IRA and a 401(k) are valid ways to do this. These two types of accounts can help you build wealth, but they both have their pros and cons, depending on your current situation and needs. Keep this guide in mind as you research more about both options.

Meghan Belnap is a freelance writer who enjoys spending time with her family. She loves being outdoors and researching new topics that help to expand her horizons. You can often find her buried in a good book or out looking for an adventure. You can connect with her on Facebook right here and Twitter right here.

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