What You Should Know About Self Directed IRA And 401K

Difference Between Self Directed IRA And 401k IRA

Saving money for the future can help you a long way. Therefore, you must ensure you have enough money for your retirement. You must realize that you will not get your paycheck forever. 

The most common forms of savings for retirement days are:

a. 401(k) Plan.

b. Self Directed IRA Plan.

You can choose your saving plan as per your will, but you must know about certain factors before investing in any of the plan.

Tax Relief

Retirements saving accounts are often the most favored choice for retirement savings because of the tax exemption benefits associated with them. If you have a 401(k) plan, then the money invested in 401(k) will be exempted from taxes until the withdrawal day. Moreover, you will get more benefit of the tax exemption if you have higher contribution. If you have a self-directed IRA, then you will need to pay tax on your deposit, but will get tax exemption at the time of withdrawal. 

Contribution

Both 401(k) and self-directed IRA have maximum limits of contribution. However, the limit on 401(k) is higher than the limit on self directed IRA. 

Loan facility

Another advantage of 401(k) plan is that you can borrow your money as a loan and then repay the loan with interest fees. This can be a good benefit for those who need money at some point in time. On the other hand, you don't get any loan facility on your IRA account. 

Investment decision 

If you have a 401(k) plan, then your employer will choose a company and you will only be required to make your contribution. Therefore, you don't get any choice when you choose this plan. The IRA plan gives you more independence and flexibility in this regard. With IRA, you can choose the mutual funds and other financial products offered by the company. 

Contribution from Employers

You should remember that your employer is not liable to contribute in your IRA account. But if you have a 401(k) plan, then your employer will make contribution towards your retirement plan. The important point to remember is that the contribution from employer is also a fixed percentage of your salary. Moreover, you will be required to continue to work for the same company before claiming your funds.

If you want to choose a plan for your golden years, then take into account the positives and negatives of both plans before making your decision. In this way you will be able to make the most out of your retirement savings plan.