The Differences between IRAs, SDIRAs and 401(K) Retirement Accounts
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Are you having a hard time understanding different investment options? Or planning for your income and profits after retirement?
If the answer to all of these questions is “yes”, you’re at the perfect place. Today, we’re talking about investment and income generation options for your retirement.
So, let’s dive in!
Are these all the same?
On a fundamental level, all of these options serve one purpose and look the same: income-producing retirement plans. They offer tax benefits and are typically used for long-term growth prospects.
However, there are a number of differences, the primary being that 401(k) retirement accounts are set-up by the employer.
IRAs—regular or self-directed—on the other hand, are provided by financial institutions and can be set-up by individuals on their own (self-directed), or with the help of a firm.
Which ones the best for me?
As a retiree, your goal is to make a profit with long-term tax benefits and features that fit your needs the best. In order to figure out which plan is the right one for you, here’s what you need to consider!
- Your investment is as safe and low-risk as you want it to be. If you’re keeping bonds and stocks in your IRA, you’ll have better safety but also low yield in profits.
- Since the money you put in an IRA account has already been taxed, you’re not required to pay any more taxes, so you get a substantial tax break.
- Depending on your monthly distributions, you may have to consider penalties in a traditional IRA upon failure to withdraw a minimum amount.
- If your employer doesn’t have a 401(k) plan, you need to set-up an IRA for your retirement plan—unless you plan on working all your life.
- With a self-directed IRA, you have more freedom in investment, however, with the lack of financial guidance and support, you’re likely to make prudent investments that offer little to no yield.
How do I move forward?
Different IRAs and investments have different tax liabilities and you may also face some income limitations for monthly contributions.
Navigating through your retirement account and using it as an investment option is a complicated task where you can definitely use some help.
If you need to learn more about investing through an IRA, we’re here to extend a helping hand.