IRA vs 401k, which is better when you need to consolidate your retirement funds from a past employer? At this point you know that it is important to be saving and investing for your future retirement, but where should you plan to move your funds as you change employers or careers? In this post we will examine the question of IRA vs 401k, so that you can make that decision for yourself.
As in all things financial, it is important to understand that everyone’s circumstances are different. So, there is no best plan when choosing between IRA vs. 401k. It is simply a choice between good and gooder (I know I probably just lost all credibility with that word, but I want you to take to heart that it is really a choice between two good things). We are simply making a plan, so we are ready for our IRA rollover that will come in the future.
Something that I need to make clear is that the IRA we are taking about is a traditional IRA. Since we are taking about funds that have already been invested in previous retirement accounts that are tax deferred, we cannot shift this money to a Roth IRA without incurring some significant fees and penalties.
With this clear, we can examine question of IRA vs 401k more closely.
The first thing we should look at is how flexible the different retirement accounts are. An IRA definitely has the advantage here as they can be created for most any type of investment option. The standard 401k program will have options, but on a much more limited scope.
Next, we need to ask ourselves how much time we have to research our investment options. The problem with too much flexibility is that it can lead to paralysis if there are too many decisions to make. This means that more time goes by without your retirement funds invested and you lose out on potential profits.
401k programs can come ahead in these situations because the structured set up allows for only a few decisions to be needed before your money is invested.
As you can see the IRA vs 401k debate can go back and forth. Remember that the most important thing is to invest those funds for your future. It is not really IRA versus 401k; it is about making a choice to achieve the quality of life you deserve.