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Saving for retirement is very important for every person even if they’re still young. Of course, this goal can be accomplished successfully by choosing a suitable retirement savings plan. There are many options for women and men, including buying gold or using a 401(k) or IRA retirement.
While you’re still young and can work hard, you can easily save enough money for the future to live when you get older. That’s why it’s important to select the right saving option for retirement, so you’ll have peace of mind about your golden years.
Following are some of the main differences between IRA and 401(k) retirement savings.
IRA Retirement Plan
Every person can create their own retirement account IRA held by brokers, investment companies, or banks. It’s possible to have an IRA in a local bank as a savings account, or this retirement account can be held by an investment firm or a broker (in this case, the owner will have more options).
Note that some assets, including art, aren’t allowed by an IRA. In contrast to a 401(k), an IRA doesn’t permit any loans. You can choose between traditional and Roth IRA accounts. The contribution limit for an IRA is $6,000 per year.
401(k) Retirement Plan
A 401(k) savings plan is offered to employees by their employer. Every employee can contribute money as a percentage of the salary they get. As for contributions, if a person earns $50,000 per year and has contributed $10,000 to their 401(k), they have to pay taxes only for the income portion of $40,000.
In 2021, people can contribute no more than $19,500 per year, but in 2022 the sum will be increased up to $20,500 per year. It’s also possible to choose a traditional or Roth 401(k) based on your personal needs and expectations. Keep in mind that a Roth 401(k) is provided for people who are 50 years old and older.
Conclusion: IRA or a 401(k) – Which is the Best?
Both of these savings plans are good, and it depends on your individual preferences to choose the best plan for your needs. Based on the amount of money contributed on a pretax basis per year, a 401(k) is more effective. A 401(k) retirement saving plan is a bit easier to manage, but it provides a limited number of investments.
As for an IRA, it offers a wider range of investments if you open it with a broker. If you have an IRA retirement plan, it’s possible to manage your investments and hold money in IRA accounts, which isn’t allowed by a 401(k).
The choice is yours, and you should do your research before you make such a serious decision.