What is Better a 401(k) or an IRA?

You should weigh the pros and cons of each plan.

You have begun planning for retirement.

You are smart.

You want to make the best decision for your savings.

According to a recent wjbf.com article titled “Advantages and disadvantages to a 401k and an IRA,” both 401(k)s and an IRAs have disadvantages and advantages.

What are the pros and cons in light of new regulations?

401(k)

Pros:

The number of participants can make it less expensive.

There are possibilities for you to have a loan on your principal should you need money.

You could have creditor protection for money in your plan.

What if you retire early?

If you retire early, you may be able to get money at age 55 without a 10 percent withdrawal exercise tax provision.

What if you retire late?

You may be able to participate in the plan and take required minimum distributions at a later date.

Cons:

There are fewer investment options for plans—probably between 10 and 15.

Loans will likely be taxable if you terminate the plan.

Distribution rules are governed by the IRS.

401(k) plans often have additional plan-specific distribution rules and guidelines.

There is less customization possible with portfolios.

 

IRA:

Pros:

You have more investment options.

In fact, you have thousands of options.

What does this mean?

You can customize your plan to more specifically meet your financial and tax goals.

You can also have more control over distributions and naming beneficiaries.

This is especially beneficial if you are considering stretch IRAs.

Cons:

Loan provisions are not an option.

You cannot get early distributions without the 10 percent excise penalty.

I hope these helped you a little when it comes to navigating this decision.

Be sure to work with an experienced financial advisor and estate planning attorney to help decide what is best for your goals and circumstances. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: wjbf.com (June 26, 2017) “Advantages and disadvantages to a 401k and an IRA”