This article is just a little write-up on the basic differences between an IRA and a 401K. You can check out my in-depth explanation on IRAs here also.
So, What’s The Difference Between An IRA And A 401K?
In order to identify the difference between an IRA and a 401K, let’s break the concepts down a bit.
IRA refers to the Independent Retirement Account. This simply means that it is self-directed. You can actually just go out on your own, selecting the company, which will handle your account. You also have control over the decisions you make in each investment from an unlimited number of options. You may simply invest in different bonds, stocks, money market accounts, and more.
If you feel that these options are pretty overwhelming, you can opt to seek assistance with a financial adviser from an institution that you have selected to deal with your account. You can then start asking questions until you become comfortable in making decisions. While your employer may limit your options regarding the 401Ks that you can actually set up, you can always set up various IRAs, including Traditional accounts, Roth, and more. These will have a significant impact on your ultimate savings goals and taxes. Here are some of the best brokerages to open an IRA.
The 401K is setup by your employer. The employers make some of the decisions needed, particularly regarding the available investment options for you. They are also the one to choose the company that will deal with and maintain your account. Your employer may present to you some options on how you can invest your money. Each of the companies will work in putting your money in various investments, which are typically grouped together according to the amount of challenges and risks that are involved in each of the groups. You can simply choose a specific plan, which comes with lower returns. These options may offer you offer less risk, or ones with higher risk but with higher returns. There are some people who actually prefer this as it limits the options they have simply because they do not want to deal with the hassle of going through the strenuous work of selecting each of the investments individually.
While understanding the difference between an IRA and a 401K can be somewhat confusing and quite difficult to figure out, make sure that you keep in mind that the point here is that you are saving for your retirement in the future.
Looking To Open An IRA On Your Own? Check Out These Deals…
While a 401K is set up through your employer, opening up an IRA is up to you. Pretty much all brokerages offer an IRA account option, but be sure to check out all the sign-up bonus offers here before choosing one.
Here are a few favorites:
- TD Ameritrade Offer: Ameritrade has great retirement options and their IRA is very popular. Open an IRA in 15 minutes or less. Rollover your 401k or open and fund your IRA and get up to $600 cash Get started today.
- TradeKing Offer: Open a no-fee TradeKing IRA today.