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The difference between an IRA and 401k, when broken down to it's most basic form, is the level of control you have over your account. This control comes into play in picking your investments and maintaining the account. A 401k is set up through your employer, and your employer makes some decisions about what investment options will be available to you, and what company will handle and maintain your account. Your employer will typically offer you a couple of plan options for how your money will be invested, each plan will invest your money in a variety of different investments and are grouped together typically based on the amount of risk involved in each group. You can select a plan with lower returns that will offer less risk, or higher risk plans with higher returns. Some people like that this limits their options because they don't want to go through the work of picking each investment individually. An IRA is an independent retirement account, which means it's self directed. You go out on your own and choose the company that will handle your account, and have control over your choice of each investment from a basically limitless number of options. You can invest in a variety of stocks, bonds, money market accounts, etc. If you find all of these options overwhelming you can always talk to a financial adviser at the financial institution you have chosen to handle your account and ask questions until you feel comfortable making your decisions. While your employer may have limited your options for the types of 401ks you would be able to set up, you can set up a variety of IRAs, such as traditional accounts, Roth, etc that will have an impact on your taxes and your ultimate savings goals. While all of this may seem confusing and hard to figure out try to remember that the important thing is that you're saving for retirement, and that you can always ask questions and learn more. Don't let this overwhelm you to the point you stop investing. While the difference between an IRA and 401k is your level of control, it's important to remember the biggest similarity-both are getting you on the path to saving for retirement. Retirement accounts don't have to be so confusing. Learn more about the differences and similarities between these options at 401k IRA and other important retirement information, such as the 401k maximum contribution limits for both accounts.
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401k, ira, retirement, roth ira,
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