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When it comes to choosing between a retirement account sponsored by your employer, and one that is a self-directing type of savings account like an IRA, the perfect answer would be to choose both. This would ensure that you have all of the retirement savings that you will need to live comfortably. But unfortunately, maxing out both of these retirement options is not an option.
401k vs IRA – The Short Answer
In reality, it’s best to prioritize your savings and focus more on one type of retirement plan or the other. The one that is best for you can depend on several factors.
When To Contribute To A 401k
If your employer offers you a 401k plan with a company match, you will want to go with this option. It would be best to fund your 401k up until you get the maximum amount of matching dollars from your employer. After that, you can consider getting an IRA. If you happen to max out your IRA for the year, you can go back to your 401k and then resume your contributions with that plan.
When To Contribute To An IRA
If your employer doesn’t offer a company match for their 401k, you will want to start off with an IRA instead. After you have contributed to the limit on your IRA, then you can start focusing on funding your 401k and take advantage of the pre-tax benefits it provides.
Taking A Closer Look At 401k vs IRA – Which Is Better?
Before you decide whether you should go with a 401k plan or an IRA, it is important that you understand more about both types of plans first.
What Is A 401k?
A 401k is a retirement savings plan that is sponsored by your employer. This retirement plan allows you to save and invest in a portion of your paycheck before any taxes are taken out. The taxes aren’t paid until the money has been withdrawn from the account.
What Is An IRA?
An IRA is an account that you set up at …read more
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