Should You Invest In A 401k Or IRA?

Many people realize saving for retirement is important.  But the biggest question asked is whether they should invest in a 401k or an IRA.  In order to choose which one depends on many things.

First, many 401k plans are set up by your employer.  Often times they match the amount of money you invest into your retirement.  Free money from your employer should not be overlooked.  However, there are a few downsides to a 401k with your employer.  Generally, your investment options are very limited.  There many be only a very small amount of funds you can put your money into.  Additionally, some of these funds may contain fees that are detrimental to optimal growth.

Another option is opening an IRA.  The benefit of an IRA is you have complete control on where and who to invest in.  You can balance your funds in many different forms such as stocks, index funds, mutual funds, etfs, bonds, and more.

Taxation is another important factor when choosing your investment option.  In particular a Roth IRA is a form of investing for the middle class.  Your gross income has to be less than $120,000 if you are head of the household or on a single account earnings.  But the main benefit of the Roth is that your money is taxed on earnings and when you qualify for retirement after the age of 59 ½ the money you withdrawal is tax free.

In order to decide between a 401k or IRA is based solely upon a few main points.  Does your employer match your funds contributed to your 401k?  What are your investment options for your 401k?  Do you like having complete control over your investment opportunities?  These are some of the questions you need to ask yourself in order to choose the best way to save money for retirement.