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Originally Posted by luv
One difference would be that my contributions are deducted from my paycheck before taxes are taken out. I think I would have to put money into an IRA myself. I'm probably wrong on that. I'm not sure. I'm limited on what I can do with my 401k based upon option that my employer chooses. Like, right now, I can no longer borrow against my 401k.
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Yeah, with an IRA you may have to settle with getting a big refund check in April, unless your employer is cool enough to let you reduce your withholding if you anticipate an IRA deduction.
The biggest difference which causes many people to settle with a 401k even though the options are more limited, is your allowed to contribute a LOT more money into the 401k (assuming your not a highly compensated employee). I think you can only put 4 or 5 thousand into an IRA every year, while you can put in 15,000 into a 401k, or 20,000 over age 50.
You can not put money into a 401k and an IRA in the same year. (rollovers dont count, you can have both if you quit, roll the old 401k into an IRA, get another job, and start funding the new 401k. The IRA is still sitting there earning money with what you put or rolled into it).
However, to make it more confusing, if you dont earn a ton of money, most people can put money into a Roth IRA and a traditional 401k at the same time. So sometimes if your in a really high income tax bracket you may max out the 401k first, and then your shut off from pre-tax vehicles, all you got left is maybe a Roth IRA. Well its better than investing it personally in your own private account with no favorable tax treatment, so at that point you might as well fund the Roth IRA too.