I have included the below chart to further summarize the differences between 401k, IRA, and Roth IRA retirement accounts. It is important to understand that there are many limitations and government restrictions that affect all retirement accounts. When you set up a 401k, a certain percentage of your check is deposited directly into your 401k account (subject to limitations). For example, they may give you a 50% “match” if you contribute up to 5% of your income or a 100% “match” if you contribute up to 10% of your income into a corporate retirement account. With a Traditional IRA, you can contribute up to $5,000 a year ($6,000 if age is 60 or older) as long as your salary is below a certain amount (see table below). The main difference between a traditional IRA and Roth IRA is that Roth IRA contributions are made with after tax dollars but all distributions including capital gains, are tax-free when you withdraw them (post age 59 ?).
Our group of financial advisors collectively hold the following credentials: Chartered Financial Advisor (CFA), Certified Financial Planner (CFP), Certified Public Accountant (CPA). I have been using my fidelity account for the past 3 years for Roth IRA, investment brokerage account and interest checking account.
If you make over a certain amount you may not be able to use, or can only partially use, tax advantage retirement accounts.
PWM does not provide legal, tax, accounting or any other related or unrelated consulting services.
Depending on your employer’s plan, you may or may not have investment discretion over your account.
An important difference between a traditional IRA and 401k is that an IRA is not maintained by your employer (you need to set it up through a bank or brokerage firm) and an IRA does not qualify for an employer match. Your accountant or investment professional should be able to guide you on whether an IRA or Roth IRA represents a suitable alternative.
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