the difference between 401K and IRA?

[230lbs]

I got 401K, is this mean I am doomed?

Are you in a 401k with your employer that you are still making contributions to....are you still working and putting money into it? Does your employer match your contributions in any way?
OR..
Have you LEFT your employer and your money is still in the employers 401K? Just sitting there.....

 

[Lestat]

401k = pre tax contributions, get taxed when you pull it out
IRA = post tax contributions, no taxes with you pull it out

there are also some other little benefits, with most IRAs you can pull interest you have made out tax free after certain criteria has been met

with 401k you can loan against the balance and pay the principle and interest back to yourself (with POST tax dollars though)

 

[75th]

Thank you sooooo much. I am new to this country and all confused about these retirement plans. I am not planning to take the money out of my fund at all. I'll shoot you a PM little bit later, cause I have some other questions too.

If you live in California I could be of service to you if you are looking to work with someone.

 

[foreigngirl]

If you live in California I could be of service to you if you are looking to work with someone.

I am in Michigan

 

[Shallow Hal]

Forgiengirl..
Slat1 is right. I work as a financial agent and this is the situation in a nutshell. You CAN leave your money right where it is, although you can no longer make any future contributions to it. The money will appreciate or deprecciate depending on the funds which you have previously chosen. BUT in general you can no longer make changes to the portfolio. You are stuck where you are. The smartest thing to do is...look at the ROTH IRA. This way you can roll the money from the 401k to the ROTH without paying taxes on the roll over. This will now give you the option to do as you please on the investment side of things. He (slat1) is correct in saying that you will be earning interest on a TAX DEFFERED basis. Meaning you will only pay taxes when you withdraw the money...hopefully not for sometime soon.
IRA stands for Individual Retirement Account. SO, roll the money over to the roth, have an agent in your area help you to pick your investments by using the "prospectus" and make changes as the market moves up and down....
If you have any other guestions you can get me on a private message.

I thought you could not roll a 401k directly into a Roth. First you need to roll the 401k into a traditional IRA. Then roll the traditional IRA into the Roth. And when you roll the traditional into the Roth you WILL have to paxes on that.

 

[BrothaBill]

401k = pre tax contributions, get taxed when you pull it out
IRA = post tax contributions, no taxes with you pull it out

there are also some other little benefits, with most IRAs you can pull interest you have made out tax free after certain criteria has been met

with 401k you can loan against the balance and pay the principle and interest back to yourself (with POST tax dollars though)

Thats not true, a 401k or 403b is the same as an IRA being that its pretax dollars. Once you leave employment you can roll it over to an IRA but it is still pretax dollars you roll over.

Roth IRAs are different, they are after tax dollars so you should specify that the IRA is a Roth IRA and not a traditional IRA which is identical to a 401k basically.

So Roth IRA is not a traditional IRA or a simple IRA.

Anyhow, lots of advantages to a Roth IRA, but virtually no difference between a 401k and a traditional IRA and its usually rolled over to an IRA once you leave employment where you had your 401k or 403b(which is the same as a 401k but tax law codes it slightly different if its offered by a notforprofit entity say for hospital employees)

So really, not much difference FG, unless you invest later in a Roth with aftertax dollars allowing no taxation on the amount.

Pretax dollars allow you to put more in obviously and lower your taxable income which can be VERY important if you can put yourself in a lower tax bracket by doing so. Thats a key advantage. They take the money out on a pretax basis then you are also in a lower tax bracket and you usually get some matching by the employer too which is like an automatic raise.

All of this stuff though is easily done with a sound financial plan to prevent mistakes that can cost you money.
They are all retirement plans and some offer better solutions depending on the individual and their goals. Even insurance plans like variable universal given you have a family can work to help build things and have more flexibility given how situations change.
Got to put it all together to have it sound

 

[spongebob]

go on a spending spree, you only live once.

 

[spongebob]

Many big differences.

401(k) is an employee sponsored plan, which basically means that the company owns the plan, not you. That usually doesnt matter, but every now and then you have an Enron situation where the employees lose everything.

Max contribution to a 401 is $15k this year, whereas max to an IRA is $4000. Both are made with pretax dollars and grow tax deferred. You cant begin withdrawls until 59 and 1/2.
.

it only mattered in enron because the money they had in the 401k was invested in enron stocks.

the money in the 401k is yours, whether the company flops or not, as long as you are not invested in that company. the last company i worked for filed ch11, nothing happened to our 401K.

you can only contribute 15k pretax dollars but you can contribute as much as you like after tax. just wanna be clear.

and you are allowed to make some withdrawls before 59.5 without penalty. i dont know the percentage or reasons but i think you can.

 

[75th]

it only mattered in enron because the money they had in the 401k was invested in enron stocks.

the money in the 401k is yours, whether the company flops or not, as long as you are not invested in that company. the last company i worked for filed ch11, nothing happened to our 401K.

you can only contribute 15k pretax dollars but you can contribute as much as you like after tax. just wanna be clear.

and you are allowed to make some withdrawls before 59.5 without penalty. i dont know the percentage or reasons but i think you can.

If your company has elected to allow Roth contributions to the 401k then you can contribute after-tax dollars.

If you make withdrawls before 59.5 you pay regular income taxes plus a 10% penalty.

 

[foxxie]

Are you in a 401k with your employer that you are still making contributions to....are you still working and putting money into it? Does your employer match your contributions in any way?
OR..
Have you LEFT your employer and your money is still in the employers 401K? Just sitting there.....

Yes I am still with my employer , what do you mean by saying If my employer match my contribution??