Starting to really look into my retirement, and trying to figure out the baseline differences between these:
401(k)
Traditional IRA.
Roth IRA.
SEP IRA.
Simple IRA and Simple 401(k)
Solo 401(k)
My company provides a basic 401(k) that I never put much thought into, just set an amount monthly to contribute and that was that.
In: 15
Disclaimer, I’m not an expert. The most common basic accounts are an Ira and 401k.
A 401k is available through your employer. Your employer doesn’t directly run it, but they choose the company that runs it. The money comes directly out of your paycheck before you even get it. Employers also sometimes match your contributions (if you put in $100 so will the) or even put in money on their own. If you change employers you’ll change 401k providers and accounts.
By comparison, an IRA (individual retirement account) is not linked to your employer. (Please note that I’m not as familiar with this account) Instead, you go find a company and open one. You have to manually contribute the money from your personal bank accounts (I think, I don’t have one). Because it’s not linked to a job, you get full control over it and it won’t change if you change jobs. Both IRAs and 401ks have limits n how much you can put in them a year, but they’re different.
Traditional vs Roth refer to different types of tax benefits and you can either 401k or ITA in both. In a traditional, you don’t pay taxes on the money you contribute. So if you make 70k and put in 5k, you pay income tax on 65k. However, when you retire, you pay taxes on that investment (so 10k as an example). You’re paying less taxes right now, but have to pay taxes when you take money out during retirement. In a Roth, you pay taxes on the full 70k now, but you don’t pay any on the 10k when you retire.
I’m not as familiar with the sep, simple, and solo plans, by the they’re geared towards small businesses or self employed people. If you’re not self employed, or work for a small business, you might not ever interact with these.
None of these are exclusive, you can have a Roth IRA and a 401k. Personally, I have a roth 401k and Roth IRA.
Make sure you’re actually investing the 401k money. 401k is a type of account, not an investment in itself. It might have just gone into a savings account type thing if you didn’t do anything. You probably want to out it into a better investment.
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