Traditional IRA, Roth IRA, Traditional 401k, Roth 401K, Solo 401K, SEP IRA, Spousal IRA, Simple IRA…With so many different types of retirement accounts available, it can be very confusing to sort out what’s what. Today we will give you a crash course on 401Ks vs IRAs. These are the fundamental concepts you need to truly understand the investment vehicles available for your retirement.

[Roth IRA vs Traditional IRA. Roth 401K vs traditional 401k. Roth IRA vs 401k. retirement planning. Retirement accounts. Retirement for beginners. Investing for beginners. Investing basics.]

0:00 Intro
0:40 401K vs Roth IRA
6:54 Outro
7:16 Bloopers
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► Roth IRA income and contribution limits:
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When it comes to planning for retirement, many people turn to investment accounts such as 401K and IRA to help secure their financial future. Both 401K and IRA accounts offer tax advantages and are commonly used by individuals to save for retirement, but they have differences that are important to understand in order to make the right decision for your financial goals.

401K is a retirement savings account sponsored by an employer, where employees can contribute a portion of their pre-tax income. The contributions are typically invested in a variety of funds, and the funds grow tax-deferred until withdrawal. Many employers also offer a match, where they contribute a percentage of the employee’s contributions up to a certain limit. This can be a great way to boost your retirement savings.

On the other hand, an Individual retirement account (IRA) is a retirement savings account that you can open on your own. There are two main types of IRAs – Traditional IRA and Roth IRA. Traditional IRA contributions are often tax-deductible, and the funds grow tax-deferred until withdrawal. Roth IRA contributions are made with after-tax dollars, and the funds grow tax-free. Both types of IRAs have contribution limits and withdrawal rules that need to be followed.

When comparing 401K and IRA, one major difference is the maximum contribution limit. For 2021, the maximum contribution limit for a 401K is $19,500 for individuals under 50 years of age, and $26,000 for those over 50. For an IRA, the maximum contribution limit is $6,000 for individuals under 50, and $7,000 for those over 50. This means that if you have the means to save more for retirement, a 401K may be a better option due to the higher contribution limit.

Another important difference between 401K and IRA is the investment options. With a 401K, the investment options are limited to the funds offered by the employer. With an IRA, you have the freedom to choose from a wide range of investment options such as stocks, bonds, mutual funds, and more. This flexibility can be appealing to individuals who want more control over their investments.

When it comes to taxes, both 401K and Traditional IRA offer tax-deferred growth, meaning you don’t pay taxes on the funds until you withdraw them in retirement. Roth IRA, on the other hand, offers tax-free growth, meaning you pay taxes on the funds when you contribute, and then the funds grow tax-free and can be withdrawn tax-free in retirement.

In conclusion, both 401K and IRA accounts offer tax advantages and are valuable tools for saving for retirement. When deciding which account to choose, it’s important to consider factors such as contribution limits, investment options, and tax implications. It’s also important to consult with a financial advisor to ensure that your investment strategy aligns with your financial goals. Ultimately, the best retirement account for you will depend on your individual circumstances and financial needs.