IRA Accounts | Bellenfant & Miles, P.C.

Last time we talked about 401K plans.? You can find that article here.? Today, we?ll take a look at IRA accounts. Many of the primary components, advantages, and so forth of the 401K plan are common to IRA accounts as well.? Because there are many similarities between the two, here I will cover some of the differences between traditional IRA?s and 401K plans.

IRA stands for Individual Retirement Account and is one of the most commonly utilized retirement investment vehicles.? Let?s take a look at a few features which the traditional IRA shares with the 401K.

Of the features mentioned in our 401K discussion, the ability to invest in a variety of instruments, the ability to grow your money tax-deferred, the ability to roll over into another IRA or even a 401K, and the ability to make early withdrawals (also subject to 10% penalty, with certain exceptions) are also available through an IRA.? Standard withdrawals for both begin at age 59 ? and are mandatory by age 70 ?.

Match / No Match

One obvious difference between the two is that the 401K, since sponsored by an employer is eligible for the match, which an IRA is not.? The IRA is strictly dependant solely on the owner?s contributions.

Contribution Amounts

Contribution amounts differ greatly.? This can be considered a distinct advantage of the 401K.? In 2010 the limit on 401K contributions was $16,500, not including employer match percentages.? For workers over 50 years old, the amount goes up to $22,000.? The 2010 limit for yearly contributions to a traditional IRA account is $5,000 if under 50, and $6,000 if over 50.

Tax Deductibility

One difference which could be considered an advantage to the IRA is that contributions to IRA accounts are tax deductible as long as your yearly income does not exceed $179,000.? This is a feature which has an immediate benefit for each tax year in which contributions are made.? While 401K contributions are withdrawn from your check pre-tax, IRA contributions may be deducted from tax returns for the year.

Other Differences

While you may make early withdrawals from either, you may not borrow from an IRA, whereas you can from a 401K.

Typically there are more investment choices available with an IRA than there are with a 401K, although the option of investing in company stock may outweigh this, depending upon the company.? Your ability to switch investments with an IRA is fairly open as there is generally a great deal of flexibility if you?d like to open or close positions in various investments.? Generally speaking, 401K?s are much more limiting of your ability to switch investments.

The important thing to remember is that both of these investment vehicles are valuable planning tools when it comes to your retirement.? If you work for an employer who offers a 401K plan, take advantage of it!? But that should not stop you from opening an IRA as well.? The best time to being planning for your retirement is right now!

Coming up we?ll take a look at traditional versus Roth IRA?s as well as 529 plans.? Stay tuned!

Source: http://www.bobbellenfantcpa.com/personal-finance/ira-accounts/

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