Individual Retirement Accounts - IRA

It can be a tough sifting through all the information there is in order to find the optimal retirement strategy for your situation. One decision you have to make is whether to choose to put your money into a 401k (should this be an option) or into an IRA. Actually, you can have both a 401k and an IRA. However, most folks only have the financial resources to choose one

If your employer matches your contributions for the 401k then the choice should be easy. Go with the 401k. If your employer does not match then you can use the following information to help you decide.

401k IRA
You typically get to choose from a limited selection of funds. You can choose from a variety of funds, buy stocks. Of course this added flexibility requires a greater amount of research and knowledge on your part.
Tax savings are realized each paycheck. Tax savings are realized at the end of the year when you file your income tax. Of course you can adjust your W2 to compensate for this savings. But this is more work.
Your maximum annual contribution (does not include employer matching) for 2008 is $15,500 with an additional $5,000 catch up contribution if you are over 50 years of age. Your maximum annual contribution for 2008 is $5000 or $6000 if you are over age 50.


What If I leave the company where I have my 401k?

In most cases you can keep the 401k, even if you leave your company. You need to research this as the rules are very different from plan to plan. You can also consider doing a rollover of your 401k into an IRA. If you are going to do this IT IS IMPERATIVE that you:

  1. determine if you are eligible to roll your 401k into an IRA. The administrator of your plan will be able to advise you on this matter;
  2. that you do a "trust to trust" transfer. DO NOT have the money from your plan sent directly to you. If you do, YOU WILL be liable to pay taxes on the money and WILL incur a 10% penalty. This can amount to a huge monetary mistake on your part.

In 2008 I rolled over a 401k plan I had into an IRA account I setup. I can buy and trade my own stocks and mutual funds. In general I am have greater control over the money. Seek advice from a reputable accountant or investment advisor before taking an action. Make a decision that makes the most sense for your situtation.