Everything you wanted to know about your 401K or IRA, but you were afraid to ask

What is the difference between a 401K and an IRA?

A 401k is a retirement plan established by an employer. The contribution is deducted from the employee's gross paycheck and sometimes is matched by the employer. For 2018 the annual pre-tax contribution is capped at $18,500 (With an additional $6,000 per year for employees over 50 years.) An IRA on the other hand, is an individual account and does not involve an employer. An individual can choose to contribute a portion of their income periodically to the IRA. It is alos possible to fund the IRA with dollars rolled over from a employer’s retirement plan, such as the 401k. Both IRAs and 401k plans provide multiple savings and tax benefits, but both plans have different rules and limits.


What is the difference between a regular IRA and a Roth IRA?

Tax

The first difference that comes to mind is the way it is taxed. With a regular IRA, you get your tax deduction upfront. You don't pay taxes over your contribution, but only when you withdraw from the account when retired.


Income limits

You are not allowed to contribute to a Roth IRA if your yearly income is above $135,000 (for 2018). For traditional IRAs there are no income limits, although there are limits to the total amount of contributions that are tax deductible.


Age limits

When you are older than 70.5 years you are no longer allowed to contribute to your traditional IRA. The Roth IRA has no such limits.

Withdrawing

Withdrawing from a traditional IRA before retirement will come with taxes and a early withdrawal penalty if you are younger than 59.5 years. You are at any time allowed to take money out of your Roth IRA, as long as you are withdrawing from your contributions and not your earnings. Plus if you are older than 59.5 years and your last contributions was more than five years before you can withdraw from your earnings as well without paying a penalty (or taxes). If you are younger than 59.5 years, you can withdraw up to $10,000 in earnings from your Roth IRA to pay for qualified first-time home-buyer expenses, again provided at least five tax years have passed since your initial contribution. This will be penalty-free.


Can I invest in gold through my 401K?

Almost none of the 401K plans allows investment in physical gold, like coins and bullion. Some however allow you to allocate a part of your portfolio to gold ETF's (paper gold). If you want to invest in physical gold, you should consider a Gold IRA.


This page is expanding, for now head over to our Gold page or our Bitcoin page.


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