Having both a 401(k) and an IRA can boost your annual retirement contributions by 30%. WSJ contributor Michael Pollock joins host J.R. Whalen to discuss what savers should know about each type of account.
0:00 401(k) vs. IRA
1:46 Advantages of having two retirement accounts
2:43 Disadvantages of having two retirement accounts
3:13 Roth IRAs and roth 401(k)s
5:24 Other retirement plans
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In today’s economy, saving for retirement is more important than ever. Many workers have the choice of investing in a 401(k) or an individual retirement account (IRA), but is it a good idea to have both? Let’s explore the pros and cons of having two retirement accounts.
Pros:
1. Diversification: By having both a 401(k) and an IRA, you’re diversifying your retirement accounts. A 401(k) plan is offered by your employer, and the contributions are usually tax-deferred, meaning that you won’t pay taxes until you withdraw the money. On the other hand, an IRA is individual and can be opened by anyone, regardless of employment status. IRA contributions can be tax-deductible, and you have more investment options.
2. Higher contribution limits: By having both retirement accounts, you can take advantage of higher contribution limits. In 2021, the annual contribution limit for a 401(k) is $19,500, while for an IRA, the limit is $6,000. If you are over 50, you can make catch-up contributions of up to $6,500 for a 401(k) and $1,000 for an IRA.
3. Flexibility: When it comes time to withdraw money from your retirement accounts, having both a 401(k) and an IRA gives you more flexibility. You can withdraw from your 401(k) plan when you retire or leave your job, but there are penalties if you withdraw before age 59 1/2. With an IRA, you can start withdrawals at age 59 1/2 without penalty.
Cons:
1. Fees: Having two retirement accounts can mean double the fees you’ll need to pay. Some employers may charge a fee for participating in their 401(k) plan, while an IRA may have management fees. These fees can eat into your earnings over time, so make sure you understand the fees associated with each account.
2. Complexity: Managing two retirement accounts can be complex. You’ll need to make sure you’re keeping track of your contributions, investments, and fees for both accounts. This can take time and effort, and there’s a risk of making mistakes.
3. Required Minimum Distributions (RMDs): When you reach age 72, you’ll be required to take annual RMDs from your retirement accounts. This can be a hassle if you have two accounts, as you’ll need to calculate the RMD for each account.
In conclusion, having both a 401(k) and an IRA can be a good idea, as long as you understand the pros and cons. Make sure you’re aware of the fees associated with each account, and be prepared to manage the complexity of having two accounts. Ultimately, having both retirement accounts can give you more flexibility and higher contribution limits, which can help ensure a comfortable retirement.
Retiring in 20 years? Due to inflation, you may need upwards of $2.6 million to maintain your existing lifestyle, with the ongoing effects of high inflation, lower forecasted stock market returns, and stagnant wages, achieving a secure early retirement could be more challenging than ever before.
Impressive video. I started a bit late (graduated from my doctorate program at age 30 in 2016 with 170k in school loan debt). Managed to pay off my debt by 2019 and currently have a house and 250k total in investments (combo of profit share, 401k and a brokerage account). I'm not very knowledgeable in investing, so I just have my investing currently in index funds mainly voo, but have been putting a lot into schd the past few months. I dunno if that's the optimal strategy, but psychologically it is very set it and forget it, and prevents me from obsessing over individual stock performance.
Vanguard target date fund. That’s all, set up reoccurring contributions and forget about it.
I expected better job from WSJ on this topic. This commentator literally said nothing useful for decision making for 401k/IRA/RothIRA.
I like how this guy makes the point that “hey, obviously you’ve maxed out your 401K at $22.5K and now you can add another $6.5K” as if most Americans are even putting money into a retirement account let alone maxing it out. …ridiculous
Self-employed people (even if they are also traditionally employed or have any of the other accounts) should also look into a (Roth) SEP-IRA.
The 401k is good, because retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k. My mom retired with about 4.2 million, but my dad retired with roughly 1.8 million. So it really does. It's also a very quick way for people who are close to retirement but with little money accrued. I wish more people knew about things like this.
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during this dip, which made it clear there's more to the market than we average joes know. Having an investment adviser is currently the best course of action, especially for those who are close to retirement
The thought of retirement makes me cry. My apologies to everyone who have retired and filing social security during this time after putting in all those years of work just to lose everything to a problem you never imagined to happen. It’s so difficult for people who are retired and have no savings to fall back on.
Totally forgot to mention income limits on deducting traditional IRA contributions or contributing to a Roth IRA.
ask what is there for lay man and reply will be for lay man there is graveyard to lay in because it's the millionaires and billionaires who can have all fun after retirement there in america
I take annuities and a deposit every five years. Since I have selective amnesia I have forgotten about that other nonsense.
Either way, Wall Street is going to steal it. Every generation finds this out the hard way.
I was really hopeful of my investments this year, but all my plans have been disoriented, I've been studying the market crashes and I realized some investors made millions from the recent 2008 recession and I was wondering if such success rate could be achieved in this present market. and the Federal Reserve taking a more hawkish approach to interest rates and bond purchase tapering. Any recommendations?
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If IRA has a limit why not just put it in index funds ? (I’m new to this)
Only Wixpool offers good returns from investments in DEX platforms on reliable networks like Bitcoin. And I don't see the point of working with risky assets…
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Amazing!
Hello there