ira or 401k?

Question

i am 24 want to start something small for later in life what should i do 401k or ira both are tax detectable right? but you can borrow money from the 401k right? my job does not offer a 401k though so could i get one from an online thing the fidelty or something?

also on the ira what is the differences between traditional and the roth?

Answer 1

If your company does not offer a 401k, then put it into an IRA. The 401k money comes out pretax from you rpaycheck, whereas an IRA is money you put into a :"bank account" type of account, after taxes, but you get to write the funds deposited off on your taxes, to reduce your taxable level of income so it becomes a wash either way. A Roth IRA however takes the funds after taxes, so if you withdraw your penalties don't exist except on the interest or returns you make on the funds.
Yes you can take a "loan" against a 401k, but there are many draw backs to this. If you are truely trying to save for "retirement" now, look into a traditional IRA. Make sure however to put enough away so that your yearly fee for having the account are lower than the returns you are getting on the money. If this happens (Typically if you only put away $1500 or less) you are better off just putting it in a savings accoutn for a few years and then putting it in an IRA.

Good luck

Answer 2

You can borrow money from the 401 K but they usually charge about 10% penalty if you take it out before retirement. The 401K is the way to go if your company offers it and they offer a match. Many companies will offer like a 50% match for up to the first 10% of the income you contribute. That's free money. If they do not offer a 401K, the IRA is the way to go. You can borrow from an IRA without penalty. Since you don't have a 401K at your job, I'd say go with the IRA.

Answer 3

To summarize: You can only invest in 401k through the company you currently work for. Since they don't offer one, forget about it.
Regular IRA - invest with pre-tax money. It doesn't grow any faster than ROTH, it just means you may have more money in it to grow For example: If you only have $1,000 to invest, with a regular ira, you invest all $1,000. With a ROTH IRA, first you take out 28% (or whatever your tax bracket) of the $1,000 because you know on the next April 15th, the irs wants that tax money, so now you only have 1,000 - $280 (28%) = $720 to invest. This is only a concern if you don't have the money to invest the max and pay the tax now. Disadvantage of regular IRA = When you take money out contributions, dividends and Capital Gains (capital gains in a taxable account are taxed at 15%) are all tax at your regular income rate, hopefully when you retire, you will be rich enough to be in the 36% bracket.
Advantage of ROTH IRA - No worries about taxes upon retirement. If you need money before 59 1/2, you can take out (I believe after 5 years in the ira) you contributions (not earnings) without tax or penalty.
ROTH IRA -

Answer 4

If your company doesn't offer 401k, then I don't think you want to get one because the main benefit is company matching. On a Roth IRA the tax is taken out before you put it in, so in the end what you see is what you get, and the traditional IRA the tax is taken when you pull the money out. Since you're young, I would recommend going with the one where the tax is taken out later, because the additional money in your account will build much quicker that way. :-D

Answer 5

401k must come from a business - can't start 1. If want to borrow from it don't start at all. Roth Ira best for most as pay nothing on gain when you take out. Traditional Ira gives tax deduction now but potentially big taxes when you must draw.

Answer 6

You can only participate in a 401k through your employer. If yours doesn't offer one, that's why they have IRA's.

A traditional IRA, you put money in tax-free, and everything is taxed (including the gains) when the money is withdrawn later.

A Roth IRA, you pay taxes today, and never pay taxes when you withdraw the money, even on the gains. Being only 24, it's likely that your current tax bracket is hopefully lower now than it might be when you're older, as incomes typically rise with experience. So, it's cheaper to pay the taxes today, in most cases.

IRAs have lower annual limits on how much money you can put in compared to a 401K, but you can shop hard to find the best funds to put your money in. A 401k typically has a small basket of funds you can choose, and rarely are they the best funds in their class.

Your best bet is probably to find a Roth IRA through Fidelity or someone. NEVER go to someone that wants to charge you 5.75% on your deposits, like Ameriprise or other financial planners. You can't make that money up. At your age, you should probably just put 80-100% of your money in index stock funds. Perhaps mixing up things with small cap, large cap, and international, and maybe 10% in a bond fund.

Find no-load funds to invest in. When you're young, it's generally advised to put more money into stocks than bonds, as stocks will gain more over the decades. Bonds will lose less money, so they're better to have more of when you're getting closer to retirement and can't risk losing as much of your principal savings.

Eventually, you'll probably have a job that offers a 401k. It's usually advised to max out your contributions to your 401k, up to whatever your company will match. For example, many companies will match 50% of your deposits up to 6% of your income, so they'll stick another 3% in for you on top of your 6%. That's getting an instant 50% return on your money. Once you pass the employer matching amount, most people would advise you to put everything else into a Roth IRA instead of maxing out your total 401k ability, which is well above what employers would generally match.

Answer 7

Just to be clear, the Roth has one big advantage over a traditional deductible IRA, and that is that all of the GAINS that you accumulate over the years will be TAX-FREE. With a deductible IRA, you'll pay taxes on principal AND gains at your regular income tax rate when you finally make withdrawals.

Whoops--I was too slow. I see this was pointed out by NONAME above. I agree with everything else he says too. Great reply.

Answer 8

I don't know which would be better, but I do know that the difference between the traditional and roth IRAs is that the roth IRA uses after-tax dollars and you take it out tax free at retirement, while the traditional one is pre-tax dollars and you pay taxes on the disbursements at retirement.

Answer 9

401k is tax differed. Not all IRA's are tax deductible. You can only get a 401k if your employer sponsors one.

Do not ever borrow money from any type of retirement account, you will have to pay it back plus interest and penalties.

Answer 10

401k all the way!

It lowers your gross income!

2nd best plan is a ROTH IRA when you with drawl at retirement, you pay no taxes on the earnings.