Q:

What are the benefits of an IRA vs. a 401(k)?

A:

Quick Answer

Since 401(k) accounts are employer sponsored, most companies match their employees contributions up to a certain percentage. In addition, they have a higher cap on contributions. IRA accounts allow more freedom over investments. The benefits to having a 401(k) or an IRA account depend in part on your financial situation.

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Full Answer

While 401(k) account holders under the age of 50 can contribute up to $18,000 a year, that number increases to 24,000 a year for those over the age of 50. Contributions for IRA account holders under 50 caps at $5,500 increasing to only $6,500 over the age of 50.

When considering where to actually invest retirement money, 401(k) account holders are limited to the options their employer offers, while IRA account holders have much more flexibility. These options include CDs, bonds, or real estate. Some of these investments can be risky and affect your account balance when the money is disbursed, so caution is advised.

When considering IRAs, an individual might choose a Roth IRA. A Roth IRA is a distinct form of IRA account that allows contributors to pay taxes up front, so when the money is disbursed, taxes are not taken out. Under non-Roth IRA circumstances, regular taxes are taken out when the money is disbursed. This can be advantageous for those that don't want to deal with tax math when it's time to receive their retirement money.

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