IRA vs 401K: Top 10 Things To Consider
1. One thing to consider with an IRA vs 401k plan is the flexibility offered. Usually an IRA is more flexible than a 401k and will give you more options to choose from.
2. A 401k rollover to IRA will allow you to keep the new account permanently, no matter who you work for. This is usually done when you change employers and can not or do not want to keep your money in the account.
3. Tax implications are another consideration in the IRA vs 401k decision. Each account type is taxed differently, with a 401k being taxed when it is distributed and an IRA being taxed when the money is deposited but with a tax credit for contributions made during the year.
4. For self employed retirement plans an IRA may be a better choice, because these are set up by the individual and not the employer. An IRA does not allow employer matching contributions though, and a 401k may allow this.
5. The IRA vs 401k debate should also include how much time you have to do any necessary research and investment evaluations. Many 401k plans are simple to use and require little or no research because of limited options, while the opposite may be true of an IRA account.
6. The management fee of the account is an important consideration. One problem with some large and small business 401k plans both are management fees which border on excessive, and these plans should be avoided when possible.
7. The contribution limits of each account type should also be considered. 401K plans may have a much higher limit on contributions than an IRA does, so your contribution amount will play a role in your decision.
8. Income limits may be another aspect to consider when choosing an IRA vs 401k account. Each account may have certain income limits in place, and you should be aware of these limits to make the best decision.
9. A retirement savings calculator may not include any management expenses and investment fees in the information given, and you should take these into account as well.
10. One factor in the IRA vs 401k debate is borrowing against this account. Many 401k plans allow you to take a loan against your account balance, while an IRA normally does not include this option.