Roth Ira

If you only had the money for it, it would be ideal to maximize contributions to both your 401K employer plan and an IRA. This may be desirable, but it simply is not possible for many people. From the monthly income, there is only that little amount that can be squeezed out to put into the retirement fund. You will have to make a 401K IRA comparison to determine where to put your savings.

Employer's contribution. One of the things you'll need to consider is that your employer is probably making matching contributions when you decide to contribute some of your income in a 401K retirement plan. The size of their matching contribution may vary.

You will notice in your 401K IRA cost comparison table that 401K may have an edge over IRA on this point. Your employer may decide to match your 401K contribution in full, or contribute only a portion or none at all. Whatever the amount that your employer decides to put in, that amount decreases the cost to you in your efforts to build up your retirement fund.

If your employer matches your contribution dollar for dollar, it will be like you are saving in your 401K in one year the amount that would take you two years to save in an IRA. That's because it is only you making contributions to your IRA. For this reason, many advisors believe that in a 401K IRA either-or choice, you may be better off choosing your 401K employer plan, at least until the time when that plan may no longer entitle you to a match.

Savings Access. One good thing about 401K plans is that you can borrow from it, thus your retirement savings are accessible for the purposes you have in mind. When you repay your loan against the savings, your full retirement fund is restored and the principal continued earning interest all the while.

Borrowing against the fund is not possible with IRA. If you draw money from an IRA, you cannot pay it back so there is a permanent diminution of your retirement fund. However, under certain circumstances you can already start distribution on the IRA. With employer plans, you will never be able to withdraw the retirement funds, not even the amounts you have contributed, unless you are retired or are no longer employed.

Opportunity for investment. If you do a 401K IRA investment capability comparison, you will find that a 401K does not have a wide selection of investment opportunities. Usually, the choice of investments depends on the employers although there are cases where the employee makes the selections.

Your employer may be making good choices, and it is not necessarily true that you can make better ones. However, you may be familiar with simpler investments, like a stock index fund, which may perform better than the 401K employer's plan.

With an IRA, although you have to pay for all the contributions to the fund, it is thus possible to make it grow faster than a 401K. Over the long term, slight differences in yields and investment performance can result in substantial differences in the way your retirement savings will grow. On this point in your 401K IRA face-off, IRA may have the advantage.

But it won't always be true. Continued losses in riskier investments might diminish your IRA, and some 401K plans do have some promising investment selections. You should take the trouble of keeping yourself informed and getting good advice before you make your 401K IRA decision.