Do You Have to Choose Between an IRA and a 401(k)?

There is a popular set of memes used all over the internet in which someone is seen saying “Why not both?” There is no indication of the question being asked but the idea behind it is that if you aren’t forced to pick one of two choices, you can choose both and this might be to your advantage.

A article about “the key differences between 401(k) and Roth IRA retirement plans” offers oft-repeated advice as well as one piece of advice you don’t often see in these comparisons: if possible, you should have a Roth IRA and a 401(k). 

It is easier and more cost-effective to withdraw money from a Roth IRA before you reach retirement age. This is one very important reason that you may be advised to put money into a Roth IRA instead of a 401(k). And, obviously, everyone’s work situation does not allow for a 401(k) but if it does, you are not obligated to only have one of these accounts.

There are advantages to both, so if you do not have to limit yourself to just one of these retirement accounts, you should consider having both. In discussing the benefits of both, the article points out that: 

“When it comes to the control you have over your money, 401(k)s limit you to pre-screened funds that have been approved by your employer’s plan, whereas a Roth IRA gives you a wider range of options including stocks, bonds, ETFs and index funds.”

A Fee-Only financial planner can help you decide just what needs to go into  your retirement portfolio. It helps if you have some idea of the different possibilities and are open to considering a path you may not have considered before. Your retirement portfolio is for you so there is no convention or protocol that you absolutely must follow.

©Bring Clarity to Your Finances™. Do You Have to Choose Between an IRA and a 401(k)? is a post from Bring Clarity to Your Finances™

About the author

Claire Emory, MBA, CFA, CFP®

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