Advice on IRA vs. a 401K Plan - The Bills.com Blog

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Advice on IRA vs. a 401K Plan

Thursday, Apr 12, 2007

Question: My company is switching from a Simple IRA to a 401k plan. While there will be a presentation on why this is a good idea, what questions should I ask? What do I need to be aware of? Concerned about?

Answer: Thank you for visiting Bills.com. Here is an answer to your investment question comparing a Simple IRAs to a 401k plan:

The major consideration is that under an IRA, you can place it anywhere and you can invest in any security or fund that you choose. In a company sponsored 401k plan, you are constrained to invest in funds that are offered under the company sponsored 401k plan.

If your company matches your 401k contribution, you will certainly want to
max out your investment, at least up to the level of the match.

In a 401k plan, you can typically contribute up to $12,000 annually. In an IRA (individual retirement account) you can usually save up to $4,000 annually (although this amount limitation is rising).

If you plan on taking out
the investments before retirement age, you will be penalized under the 401k (taxed at ordinary income), and you may be penalized under the IRA... you will want to get specific advice from a tax advisor or attorney.

I hope the information helps you Find. Learn. Save.

Best,
Bill
www.bills.com/blog/

Also, make sure to get a free financial health check-up with Bills IQ!

User Comments

1. Posted by C Cole on Monday 14th May 2007 15:37

I am 55 and have recently been laid off and want to put my 401K money into CD/IRA/Annuity. My question is, can I have the interest on this money given to me without penalty so I can live on it. I want to use the Rule of 55, but can't seem to get much info on it. Thank you, C Cole

2. Posted by Bill on Tuesday 17th February 2009 15:21

I am not too sure, you will need to find out from your plan administrator.

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