401(k) and IRA

You’re making money, and the money that you’re not spending has to go somewhere. Sure, a bank is safe, but is there somewhere we can put the money so that it’ll be working to make more money? The answer can be found in two options: 401(k)s and IRAs. Both have valuable tax benefits, and you can contribute to both at the same time. Many employers offer 401(k)s to their employees, but individuals must choose to open IRAs on their own. IRAs typically offer more investment options, while 401(k)s allow higher annual contributions.

If the IRA vs. 401(k) comparison is weighing on you, here’s the quick answer:

• If your employer offers a 401(k) with a company match: Consider putting in enough money to reach the maximum match; after you get the match, put the rest into an IRA; you can rinse and repeat this with every year afterwards.
• If your employer doesn’t offer a company match: Try starting with an IRA instead; you’ll get access to a large selection of investments when you open your IRA at a broker. When you reach the IRA limit, think about funding your 401(k) for the pre-tax benefit it offers.(Note: There are situations where you might want to change a 401(k) into an IRA.)

  If you are financially able to contribute to both, then definitely do so!

  You may have heard IRAs being referred to as “traditional” or “Roth”; these help to distinguish between whether the money that is funding the account is done so with pre-tax dollars or with post-tax dollars.

• A traditional IRA is ideal for those who favor an immediate tax break. It will help lower the total amount of your taxable income for the given year.
• A Roth IRA is a good choice if you’re looking for tax-free growth. While you pay taxes upfront, you’ll be able to get the full amount you want when you decide to withdraw the money.

Have more questions or want more details? Our team is more than happy to provide the info you want and need.