Retirement Funds

IRA’s (Individual Retirement Account) and 401(k) accounts are two of the most common retirement plans.

IRA’s allow tax-deferred payments:

• Traditional IRA’s give tax deductibles

• Roth IRA’s are not tax deductible and offer tax-free incentives for qualified distributions

• SEP (Simplified Employee Pension Plan) is an IRA set up by the employer

• SIMPLE IRA Plan (Savings Incentive Match Plan for Employees) is an IRA set up by the employer where employees choose salary reductions and employers match the price with a contribution

401(k)’s allow profit-sharing from wages to an individual account.

• Roth 401(k)’s are best for high income earners - contributions are taxes but income earned from the account is tax-free.

• Self Employed 401(k)’s are best for entrepreneurs - contributions are tax-deductible and income earned from the account is tax-deferred

• Safe Harbor 401(k)’s are best for high income earners and small business owners - contributions can be pre-taxed or post-taxed

• Simple 401(k)’s are best for small business owners - contributions are tax-deferred

• Profit Sharing Plans are best for entrepreneurs and small business owners - contributions are tax-deductible and income earned from the account is tax-deferred

• 403(b) Plan’s can be eligible for employees working in the public school system or tax-exempt organizations - account can include contributions made after-tax, and contributions are tax-deferred until withdrawn

Comparison:

• 401(k) contributions are tax-deferred

• 401(k) contributions can be set up by an employer

• The IRS sets a contribution limit on IRA’S, 401(k)’s, and Roth accounts to limit the tax advantages that higher income earners could have - IRA’s have a lower contribution limit than 401(k)’s

• IRA’s and Roth IRA’s have more investment options than 401(k)’s

• Roth 401(K)’s are typically better for higher income earners, while Roth IRA’s have more investment options.

IRA’s are easier to obtain and are easier to set up a Roth account with. Although you must have investment knowledge, it has more investment options.

On the other hand, 401(k)’s are allowed to match with an employer and offer higher contribution limits (which is better for higher income earners). Contributions are always tax-deductible, it is considered more secure from creditors than an IRA, and you are allowed to take loans on a 401(k).