Several people seem to think all the available options for retirement planning and investments are more confusing than anything else. In case you too feel that way, then this article is made just for the likes of you, detailing the differences between an IRA account (Individual Retirement Account) and the 401(k) plan. Several terms that you come across while researching the information will seem quite confusing till the terminology is well-understood by you. Financial stability post retirement should not be as complicated as it seems to us.

Retirement Planning Advisor

It is also recommended that you take the counsel of a reputable and professional financial advisor. Competent financial advisors can provide you with the kind of guidance that will prove invaluable when it is time for you to take a decision regarding the investments you plan to make which will affect your savings for your retired life. If we do not have any issues going to a mechanic if we need some kind of mechanical advice, then it is perfectly logical to approach a financial advisor, trained in financial dealings, to request financial advice.

Coming back to the topic at hand, for financial retirement planning, it is a good thing to know that both 401(k) and IRA accounts have advantages and disadvantages. They also have restrictions on the benefits they can provide when they are used as combinations or if they are used in single usage. Each benefit that helps you in retirement planning and saving taxes should be carefully considered before taking the plunge.

Retirement Accounts

First, let us look at 401(k) accounts. This plan offers some benefits that are more advantageous than several other retirement plans. You might want to know that you can invest as much as 15% of your entire salary, up to a maximum of $15000 every year. This of course is under the assumption that your employer does not place limits on the amount that you can invest. Money that you invest in 401(k) account is pre-taxed, so the taxes you pay are lower when you invest money this way.

A lot of people also find that having the money deducted before they actually receive it makes it less painful to see it go away. In the position of someone who has continually been observing, taxation, Fido and FICA take away money over the years, it is not any less painful for me either, but a few find it to be comforting, and that can be a very good advantage. Eventually, and most importantly, employers will also match you on the investment that you put into the 401(k) and that significantly adds to it.

As a hardworking employee, you will appreciate this investment and boost to your savings account. You will also soon see the affect it has on the money you save for the future. Of course, it is wise to remember that the penalties for these funds are quite harsh, and you should not touch them unless you are retiring. It is best to not dig into that money till you are in an absolute state of emergency or in dire need of funds.

Individual Retirement Accounts

IRA is completely different in this sense. IRAs have more restrictions and limitations than what the 401(k) gives you, starting with the truth that in case of the 401(k) you have to be a in a very low income category to be eligible for the tax deductions offered by this kind of an investment. IRA allows a maximum contribution of all your income or $4000, whichever amount is higher till you reach the 50the year of your life. Once you cross 50 years of age, IRA allows the contribution of $1000. Another chief drawback of the IRA is that payments can be received only after the 70.5th year of your life. If you make withdrawals any earlier than that then you have to face heavy penalties for withdrawing funds before the specified time.

Whichever plan you decide to go ahead with, whether it is the 401(k) or the traditional IRA, you should make time to consult your financial planner to discuss the various advantages of each plan, and then only decide to make an eventual commitment.