There are many different options involved in investment management. You can choose to tackle it on your own or go to an investment advisor. Your employer may also have personnel that will help you navigate the myriad rules and regulations regarding investing your finances. You should understand your options either way. Reading articles like the one you are currently looking at is the perfect way to arm your self with knowledge
The main decision involved in your financial planning involves which type of retirement plan to place your future in. You may feel intimidated by terms like IRA or 401(k), but it is simpler than you think. There are a few factors to weigh according to your personal needs and desires that differ between the retirement plans.
A 401(k) plan is a investment management plan that involves your employer in the process. That is the main difference between and IRA and a 401(k). Employers remove a portion of your money directly from your paycheck before taxes are applied in a 401(k) plan while an IRA involves an investment management company that will be in charge or your retirement savings. Individuals who are self-employed or participate mainly in contract work or other nontraditional employment situations may not be eligible for a 401(k).
There are a few advantages to having a 401(k), however. Many employers will match your investment into the plan. Therefore, every dollar you put towards your retirement will be met with another dollar placed into the account from your employer. In addition, the maximum amount you can put towards your retirement in a 401(k) annually is more than three times larger than than you are allowed within an IRA.
There are two types of IRAs: a Roth IRA and a traditional IRA. Both involve an investment firm and not one’s employer. There is a good deal more freedom involved in an IRA over a 401(k) despite the reduced maximum investment. You can withdraw your money without any negative effects from a Roth IRA at any time. You also are not required to withdraw at least a minimum amount starting at age 70.5 under a Roth IRA plan, unlike a 401(k).