Difference Between Self Directed IRA And 401k IRA

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Difference Between Self Directed IRA And 401k IRA Powered By Docstoc
					Difference Between Self Directed IRA And 401k IRA

If you want to make your golden days bright, then you must save money today. This is simply to say that you
should prioritize on saving for your retirement. You should be well aware of the fact that there will come a
                                             time when you will not receive your paycheck regularly.

                                            There are two main types of retirement saving plans. They are as

                                            1. THE 401(K)

                                            2. THE SELF-DIRECTED INDIVIDUAL RETIREMENT ACCOUNT OR IRA.

                                            You can choose your saving plan as per your will, but you must
                                            know about certain factors before investing in any of the plan.


Retirements saving accounts are often the most favored choice for retirement
savings because of the tax exemption benefits associated with them. If you choose
to open a 401(k) account, you will not have to pay taxes on the money until the
day that you chose to make a withdrawal. The higher your contributions, the
lower the amount of tax you will be charged. If you have a self-directed IRA, then
you will need to pay tax on your deposit, but will get tax exemption at the time of


Both 401(k) and self-directed IRA have maximum limits of contribution. However,
the limit on 401(k) is higher than the limit on self directed IRA.


With the 401(k) retirement plan, you can borrow your own money and pay it back
with interest. This can be a good benefit for those who need money at some point
in time. When it comes to the IRA, you are limited to stashing your money in your
account and waiting till the time you retire.


With the 401(k) plan, your employer chooses the financial company that you
would be asked to invest in. Therefore, you don't get any choice when you choose
this plan. The IRA plan gives you more independence and flexibility in this regard.
You get more independence in IRA as you can choose the financial products offered by your preferred

With the IRA, making contributions is all a one sided affair. With the 401(k) plan, your employer makes a
matching contribution to whatever you deposit. However, this money is limited up to a certain percentage of
your salary. Also, you will need to be stuck to same company before you can get your share of money.

Evaluate the advantages and disadvantages of both the plans before you invest in any type of retirement plan.
In this way you will be able to make the most out of your retirement savings plan.