401K vs. IRA- Understanding Investments

December 20th, 2009 by David Leave a reply »

Retirement saving is almost automatic and detached for most people. They do what they have to do, whether it be signing up for their company 401K or getting their own IRA account if they are not eligible for workplace benefits, and leave it at that. They don’t do research, don’t consider the options, and don’t put enough thought into the issues that they are facing at all. Why not? Well, like many things in life, sometimes it is just easier not to think about investments and retirement accounts.

Easy is not going to set people up for the financially secure future that they need. Therefore, you should at least have a basic understanding of the types of investment accounts you can choose from. When it comes to 401K vs. IRA, here’s what you should know:

-401K is more permissive in emergency situations where money is needed before the age limit has been reached.

-401K should be left as is when you have significant employer stock. IRAs cannot offer the same types of tax savings that 401K account holders get for taking a lump-sum distribution of employer stock.

-While you might not realize it, your 401K can have significant appreciation value in the employer stock that you have. If you have been with a company for a long period of time, you’re going to have more appreciation than others and will need to think carefully about your moves before you make them.

-IRA rollovers are usually considered to give heirs or beneficiaries a chance to accumulate the money without tax penalties. When it comes to the 401K vs. IRA debate, this is the strongest argument in favor of the IRA.

-IRA accounts offer more flexibility, better investing options, and a better range of solutions for financial security and future investments. If you need choice, you should definitely choose IRA accounts.

-401K accounts often involve substantial investment in stocks. IRA accounts don’t have to have stocks in them at all. If you’re not willing to take a risk on the stock market, an IRA account with more flexibility and choice might be better for you.

There are many more differences and things to consider in the great 401K vs. IRA debate. However, these are the basic and most important things that you should keep in mind. There are many instances when an IRA is the better choice and even instances where the 401K will be the better option. Take the time to explore your own financial situation and talk to a financial advisor to find out what works best for YOU.


1 comment

  1. I don’t think 401K or even Roth IRA is a good investment vehicle in these market conditions. It’s only a matter of time before inflation starts to creep up. I would consider hard assets such as land, gold, even real estate at least right now.

    Here’s some more information on Roth IRA if you want more in-depth info :



Leave a Reply