Checks & Balances: Your Guide to IRA & 401K Accounts

Social Security was started in 1935 in order to financially help support a person after they could not work anymore. Not long after, governments and companies started creating retirement plans to help supplement what social security would not cover. Now there are quite a few options in order for a person to save for retirement and they should consider choosing one to ensure their financial future when they retire. Planning for a secure financial future is one of the best decisions a person can make and the sooner they start saving, the better.

The Individual Retirement Account (IRA)

There are two IRA’s that are the most popular: the Traditional IRA and the Roth IRA. IRA’s can be opened at a mutual fund company, a brokerage company, or at a local bank. After deciding where to open an IRA account an individual can then decide as to how they would like to invest their money in a way that will provide them with the most financial benefits. The money in these plans can be invested in many areas including:

• Stocks
• Bonds
• Mutual Funds
• Certificate’s of Deposit (CDs)

Benefits of a Traditional IRA

Traditional IRA’s are favored because of the benefits it offers. With this type of IRA the contributions may be fully or partially tax-deductible. It is available to everyone. Withdraws begin at age 59 ½ and are mandatory by age 70 ½ and there are generally no taxes paid until money is withdrawn.

• Tax-deductible contributions
• Earnings grow tax-free until the individual owner turns 59 ½
• No income restrictions
• Taxes are deferred until withdraw of funds

Where To Save

There are varieties of financial institutions online and off that offer the opportunity for individuals to open an individual retirement account. Certain facilities offer low-interest and low-cost services to approved members. Other facilities are more easily accessible and offer a wider variety of services to their customers. Listed below are places a person should check with to see what each offers to find which will help them best meet their financial goals.

• Credit Unions are a great place to open an IRA. In most cases they offer lower-interest and low-cost services to its members.
• Banks are another great place to open an IRA. By choosing a bank, customers have a wider variety of services available are more accessible for its customers.
• Brokerage Firms are available online and have many options for people to invest their money to help them save more for retirement.  

Calculating Savings and Where to Begin Saving

One key component for calculating what needs to be saved for retirement is to consider that it is likely the funds will need to last anywhere between 20 and 25 years. If retirement age is 67 then the savings will need to support the individual until they reach until their early 90’s if not longer. There are many online calculators that will help individuals calculate savings for retirement. A person can begin saving at the same type of institutions as with any other IRA such as:

• Credit Unions 
• Banks 
• Brokerage Firms
• An online retirement calculator can help determine where and how a person can save for retirement.

Benefits of a Roth IRA

The Roth IRA has the basic concept as the Traditional IRA, however:

• You cannot deduct contributions to a Roth IRA
• If you satisfy the requirements, qualified distrobutions are tax-free.
• You can make contributions to your Roth IRA as long as you live.
• You can leave amounts in your Roth IRA as long as you live.
• The account or annuity must be designated as a Roth IRA when it is set up.


• Roth IRA
• Roth IRA Information
• Revocable Living Trust Information

Where To Save

When wondering where to save for a Roth IRA they are typically the same institutions in which an individual can use to save for a Traditional IRA. They are the best options rather than holding onto cash which is usually a less secure method when it comes to saving to reach long-term financial planning goals. These institutions include places such as:

• Credit Unions
• Banks 
• Brokerage Firms

Calculating Savings and Where to Begin Saving

• The sooner a person starts saving for retirement the better, but it is never too late to save. In order to determine the amount that will be in a retirement savings account at the age of maturity, many online financial institutions and sites offer retirement calculators.

401(k) Retirement Savings Plan

The traditional 401(k) is a retirement savings plan. With this plan, employers are helping employees save for retirement by often times matching the contribution the employee makes into the account. For instance, if the employee adds $50 per week into the account, the employer also adds $50 per week meaning the employee has $100 per week going into their retirement savings plan. Individuals may then choose to invest their 401(k) in things such as stocks, bonds, or mutual funds.

Benefits of a 401(k) Retirement Savings Plan

• Traditional 401(k) contributions are tax-free until withdrawn.
• Payroll deductions with a Traditional 401(k) are automatic so the employee does not miss the money.
• 401(k) contributions matched by employer which means free money for the employee.

Where to Save

When deciding what to save for retirement it should be based on lifestyle rather than income in order to determine how much a person can put back. They will likely have to cut back on certain things in order to give them more money to save. Often times the income does not change as much as spending habits do. For instance it may be a year or so before a person gets a raise and instead of purchasing something brand new and expensive, they can settle for something less expensive and use the saved money to place in a retirement fund.

• Online retirement calculators can help determine how much and where a person needs to save to save enough to support themselves during their retirement years.

Calculating Savings and Where to Begin Saving

• Once an individual has made the decision to invest in a 401(k) plan they have already started saving. Money is automatically deducted from their paycheck and is tax-deferred meaning they bring home more each paycheck and are not required to pay taxes until they withdraw money from the account.

Roth 401(k)

The main difference between the Traditional 401(k) and the Roth 401(k) plans is how money is contributed. With the Traditional plan money is contributed before taxes and the taxes are paid when money is withdrawn. With the Roth 401(k) money is contributed after taxes are deducted from the paycheck but no taxes are paid when money is withdrawn from the 401(k) retirement savings plan.

Benefits of a Roth 401(k)

Just as with the Traditional 401(k) plan, money with the Roth 401(k) plan is automatically deducted from the paycheck. The exception is that this is done after taxes are already taken out as well which means no taxes will be owed when money is withdrawn from the account. There is no maximum age for making contributions to a Roth 401(k) plan.

• IRS Roth Comparison Chart

Where to Save

401(k) retirement plans typically take place in a person’s place of employment. There is always a chance a person can lose their employment so they should check with their company and see if there are other alternatives for just in case measures.

• 401(k) rollover to an IRA transfer is a great alternative to choose.

Calculating Savings and Where to Begin Saving

• Financial planning takes discipline and effort but it will be the best decision a person can make for not only their own future, but the future of their families. With properly educating oneself about 401(k) and IRA retirement plans individuals will be on their way to securing a satisfying, secure future so they can enjoy their golden years.