What is the difference?
2007-03-25 12:44:41 · 4 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
They are both "tax-deferred" retirement savings plans, but an IRA (independent retirement plan) is one you start yourself, whereas a 401(k) is one your employer starts for you (if you are lucky enough to be offered that option) and might even match your contributions to up to a few percent, if you are really lucky.
Mathematically, the smartest thing is to fund your 401(k) up to any company match, and then open your own IRA where you might have a wider choice of investment options.
Good luck!
2007-03-25 13:30:49 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Any financial advisor will always tell you to take the "free" money involved with a SIMPLE-IRA or 401k. The 401k was released in the 80's as a way for companies to allude the company "pension" issue and create an independant party to handle the "pension." Small companies may use the SIMPLE-IRA, where larger companies have a 401k option.
Between a traditional IRA and 401k, you contribute the entire amount and earn a tax deduction with an IRA whereas a 401k comes from pre-tax wages, but gets matched in some period later. The company has the option of providing the matching through "vesting" or the period it takes for you to employed with the company to earn the match.
All in all, a very confusing issue.
2007-03-25 20:30:59 · answer #2 · answered by atg28 5 · 1⤊ 0⤋
It all depends what your long term goal is, but I would do 401K all the way. Especially if your employer matches what you put in. That is a win win situation.
2007-03-25 19:54:09 · answer #3 · answered by danielle h 1 · 0⤊ 0⤋
Marry rich and have a trust fund or insure your parents with high policy's and hope they kick off soon. Just kidding LOL
2007-03-25 19:47:49 · answer #4 · answered by Anonymous · 1⤊ 1⤋