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Tuesday, June 8, 2010

401k? Traditional IRA? Whats the Freakin Difference!

I remember what is was like when I use to get so confused over all of the different IRA options that are out there.

I went to work, worked real hard, worked lots of hours, saved my money, and then had no clue where to put it. I mean I didn't want to loose my money, that didn't make sense.

So many advisers and so many different advices. I decided to figure it out on my own once and for all and be done with it. I learned so much about retirement investment options and vehicles. Often we get so caught up in the detail that we forget the general road map. I don't know about you but I know that I'm guilty of this.

So the first thing to do is have a general road map, Whats that saying "Keep It Simple Stupid" KISS

So here is a quick breakdown of the pro's and cons of the Traditional IRA versus the 401K. And we'll leave the Roth IRA for another day.

There are advantages to both

Advantages of 401k

  • Most companies offer a match  (Free Money)
  • Tax Advantages
Disadvantages of 401k
  • Very Very limited options , can be hard to make money at times

Advantages of a Traditional IRA
  • More Investment Options
  • Easier to make money
  • Tax Advantages
Disadvantages of a Traditional IRA
  • No Employer Match 
Here is the bottom line - Max out the employer match on the 401k. So if your company matches up to 6% only invest up to 6%. To get the match

Any savings beyond that need to be put into an IRA .

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