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401(k) and IRA

401(k) and IRA401(k)s and individual retirement accounts (IRAs) bring with them a number of different implications.  Each one has different circumstances which it is better suited to.

For example, with a 401(k) tax is handled differently to with an IRA. Contributions are placed as “tax deferred” with a 401(k) whereupon at distribution, the normal income bracket rate of tax is charged. However, with a Roth IRA, contributions are made after tax and as such upon standard distribution, no tax is due to be paid.

Another difference is the income limit which is considered in each case.  With a 401(k) there usually are no limits, whereas with an IRA there are many different levels of limits depending on marital status, income bracket and other factors.

A fundamental difference in the two schemes is the following: with a 401(k) the employer creates the plan, however in the case of an IRA, it is the individual that configures his or her plan.