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Your Choice Of Retirement Savings Account

Your Choice Of Retirement Savings Account

Saving for retirement can be a daunting task and many individuals don't begin to think about saving until its almost too late. For persons planning for retirement this day in age, there are some very attractive options that can quickly build long term wealth in addition to being very secure ways to save. This article will highlight two of those ways which are an IRA account and an employer sponsored 401(k) retirement account.

The investment retirement savings account

An IRA is a popular consumer managed account which can come in the form of a traditional IRA or a Roth IRA. One of the main benefits with investing in IRA's lies in the tax breaks that individuals receive. As long as rules are followed such as not withdrawing money from the account until or after age 59 and one half, earning at the appropriate income level to open the account and contributing up to maximum amounts for respective tax years; account holders can take all of their savings out tax free. This is opposed to an employment sponsored account where individuals must pay fees and/or at least some taxes in order to cash in on the savings or roll it over to an IRA.

Another benefit of the account is that holders can choose the investments contained in the account which are typically shares of stock or mutual funds. There are some drawbacks however to an IRA one of which is that holders are penalized up to 10% for early withdrawal which does not include income tax earned on investments. A need can easily arise where individuals may want to take money out of an IRA early such as moving the sum to a different account or into a 401(k).

The 401(k) employer sponsored account

Many companies offer retirement savings accounts to their employees as part of a benefits package. Some employers may even go a step further and match contributions made to the account. Unlike an IRA, a 401(k) and the investments that comprise it are not chosen by the employee. There are also no income tax benefits upon withdrawal. Also unlike an IRA, an employer sponsored account does not usually have a penalty for early withdrawal and funds can be transferred from the account or "rolled over" into an IRA.

Some of the benefits to 401(k)'s are that they are maintenance free on part of the employee or other person benefiting from the savings. They are also relatively insulated from negative downturns in market activity. What is more is that individuals don't have to think much about them making investing in them easier. Many employers simply deduct a predetermined amount by the employee to be deposited into the account every month or every pay period.

If you are unsure what to invest in for your retirement. Talk to a retirement advisor and they will help you make the best decision as to whether you want a high interest savings account or something else.

Image by: 401(K) 2012