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Why 401(k) Plans Are Better Than IRA’s

By: Jason Markum

Planning for retirement can be tricky in the best of times. There are so many different options that it can become confusing very quickly if you’re not careful. Unless you’ve got an advanced degree in finance or investing, you can quickly get turned around.

In this article I’m going to discuss why 401(k) plans are better than IRAs. If the company you work for has a 401(k) plan and then you should jump all over it! Sometimes participating in your company’s 401(k) plan makes you automatically ineligible to make deductible IRA contributions. That’s okay! You should still go for the 401(k) plan because they are much much better than traditional IRA, and I’ll tell you why…

For one thing, you can put more money into a 401(k) plan, usually much much more. This alone should be enough to convince you to use them more than anything else.

Another reason why I like them so much is that many companies will make a matching contribution to your 401(k) plan. Sometimes they will match as much as one dollar for every two dollars you put in. That’s huge! Think of it… right off the bat, your investment has gone up 50% immediately. Show me any other sort of investment in the world that’s guaranteed to increase by 50% the day you make it!

Another great reason to have a 401(k) plan is that they are very often managed by professionals whereas an IRA may not be, and you may have to handle it yourself. Depending on your level of experience with the stock market and financial matters, and tax issues, this may or may not be a big deal to you… but most people I’m sure would rather have a professional managing their retirement account who is experienced and can be held accountable.

Another great reason to have one is that they are very often handled via payroll deduction which makes the entire process incredibly easy on you, with nothing more for you to do after you initially set the plan up.

Yet another good reason to use a 401(k) is that very often if your plan allows you to, you can borrow money from it! Any money you take out of an IRA, on the other hand, is usually considered a withdrawal by the IRS and therefore subject to tax.

Finally, another great reason to use a 401(k) plan that many people don’t know about is that you can withdraw money from it for major medical expenses and a portion of that withdrawal won’t be subject to the regular 10% penalty that is generally charged on withdrawals before the age of 60. This is a really huge benefit that many people overlook, or simply have never heard about but in my mind it considerably tips the scales in your favor over a traditional IRA which does not allow the same sort of thing.

So there you have it; several reasons why you should always go with a 401(k) plan over an IRA.

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