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Is a 401k better than an IRA?

A 401k and an IRA are both retirement accounts.

401k notebook

Does one account offer more advantages than the other?


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Pros and cons of a 401k

401k plans are the traditional retirement plan, typically sponsored by an employer. Most people will roll the account over to a new employer if they get a new job, rather than withdrawing the money. You can read more about it here.

401k is considered the safer option. This is because it is more established as a long-term retirement strategy.

You generally can’t withdraw from your 401k until you’re 55. If you take money out before that, you’ll face an early withdrawal penalty.

The fees however, are lower than an IRA. You have access to lower cost investments funds because of group buying power.

Having your 401k invested in company stock could get you favorable tax payments when you withdraw.

Pros and cons of an IRA

An IRA account lets you consolidate all of your retirement accounts into one. This can really simplify things for you. Its a pretty easy process and there aren’t additional fees for moving your money around. This account type also has more investment options and it costs less than a 401k.

There are potential creditor protection and minimum distribution fees.

In order to withdraw, you’ll have to wait four more years than you with a 401k. Failure to wait would mean a 10% early withdrawal penalty.


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