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401(k)s vs. IRAs: Pros and Cons of Each [Infographic]

Is a 401(k) or an individual retirement account (IRA) best for you? It depends on your individual financial situation, the type of plan your employer offers and what your retirement goals look like. For some people, 401(k)s can be a great way to save for retirement. Others find that IRAs offer more flexibility. Alternatively, some individuals may choose to open both a 401(k) and an IRA.

 

What’s the difference between a 401(k) vs. IRA?

 

One of the primary differences between a 401(k) and an IRA is who administers them. 401(k)s are a retirement plan offered by employers, whereas IRAs can be opened by individuals through banks, credit unions and other financial institutions. One major advantage of 401(k)s is the opportunity to receive matching contributions from your employer. With an IRA, you are responsible for all of your own contributions.

 

401(k)s and IRAs also tend to have different tax benefits and contribution limits. To maximize your savings, you’ll have to consider when you’d like to retire and whether or not the 401(k) plan offered by your employer is sufficient for meeting your savings goals. Talking to a financial advisor or using a retirement calculator can help you figure out the best retirement plan for your individual needs.

 

The infographic below summarizes:

  • The differences between a 401(k) vs IRA
  • 401(k) pros and cons
  • IRA pros and cons

 

We hope that this information can help inform your retirement savings strategy.

 

Difference between 401ks vs IRAs

Pros and cons of 401ks and IRAs

 

 

Is a 401(k) or IRA better for your goals?

 

Even if you understand the primary differences between a 401(k) and an IRA, it can be difficult to determine which option is best for you. Due to employer-match contributions and a higher annual contribution limit, you can often grow your retirement savings faster with a 401(k).

 

However, if your employer does not offer a 401(k)—or if you simply want to open a supplemental savings account—IRAs can be a great way to help you reach your goals while allowing for more flexibility in terms of investment choices and tax benefits.

 

Learn more about retirement planning

 

Whether you’re new to retirement planning or have been contributing to a 401(k) or IRA for some time already, determining the best retirement strategy for you can be confusing. If you’re looking for personalized retirement advice, Cadence Bank can help.

 

Find out more about our personal retirement planning services and reach out to a wealth manager advisor today.

 

 

 

Sources:

1https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

2https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

3https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

 

 

 

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