401k or IRA, which is the better retirement plan?
This is a very common question of U.S. citizens who are planning for their retirement. Which one is the better choice for growing your retirement funds, a 401k Retirement Plan or an Individual Retirement Account? Both are good retirement plans. The best for you depends on your employment and financial situation.
401k Retirement Plan vs. Individual Retirement Account (IRA)
As already stated, they are both sound retirement plans and good investments. We don’t need to pit a 401k vs. IRA. They both offer a fairly good range of investment opportunities and they both offer similar tax advantages. In fact, one can choose to have both simultaneously. The question you need to ask is what will be the best fit for you based on your employment and financial capacity.
For Employed Individuals
First off, if you work for a company, chances are they offer a 401k plan. If so, take advantage of this. A 401k plan allows for higher contributions compared to IRA and the more you put in your retirement fund the better. Plus, most employers offer to match your contributions, some are even up to 6%. It’s advisable that you consider this opportunity as you get the most out of your employers matching contribution.
For Self-Employed Individuals
For self-employed or freelance individuals getting an IRA is the logical choice since a 401k plan is not available to you. There are 2 types of IRA accounts, Traditional and Roth. Do your research which of the two retirement accounts will apply to you.
Getting Both plans
For employed individuals who want to save up more than what they can put in their 401k, getting an IRA to supplement your retirement plan may be a good option. If you have enough income to save up for both then it’s advisable to take this path of the road.
Whatever the situation you may be in, or whichever plan you may choose to take, it’s best to do your own research, and get an advice from financial experts or lawyers before taking the plunge so you are assured to get more out of your money for your retirement.