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401(k) vs. IRA

Posted in Retirement
November 20th 2014 by
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You’ve heard how important it is to set up a retirement plan and you want to get started. Or, maybe you just want to understand what options you have.

The two common accounts you’ll hear about are  401(k)s and IRAs. Here’s what you need to know about both of them.

401(k) Plan

  • This is a plan you can get from your employer.
  • You won’t need to worry about maintaining your account or remembering to make contributions. You specify how much to take out of your paycheck and it’s a pre-tax deduction.
  • Employers often offer to match up to a certain percentage, which is essentially free money for you.
  • The maximum amount you can contribute in one year is $17,500
  • Your spouse is automatically the beneficiary of this account, unless they signed off on someone else being the beneficiary. If you’re single, you name the beneficiary.
  • You may be able to take a loan out against your 401(k)
  • Expect steep tax penalties if you withdraw funds before retirement.

IRA Account

  • Individuals under 70.5 years with an income can set up these accounts.
  • You have to maintain the account and arrange contributions.
  • Maximum of $5,500 per year can be deposited; $6,500 for individuals over age 50.
  • You can designate your own beneficiary.
  • You cannot take out a loan, but most will offer a 60-day tax-free period where you can borrow money as long as it’s returned within that time period.

IRA Accounts at Aspire

Aspire FCU offers Traditional IRAs, Roth IRAs, IRA Accumulator accounts and Educational IRAs. Visit the IRA Accounts Page to get more details on these products.

Traditional IRA accounts at Aspire offer no penalty withdrawals if you are buying a home ($10,000 lifetime maximum), or need the money for college expenses. There is a 10% penalty for all other withdrawals.

Visit these resources for more retirement advice:

How to Secure a Retirement Nest Egg

Will You Be Ready for Retirement?

Getting the Most From Your 401(k)

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