IRA vs. 401K - Page 2

Liza · 05-14-2008, 11:28 AM

Difference between IRA and 401k: What's the difference between an IRA and a 401(k)? | Answerbag

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A 401(k) is an employer-sponsored plan. That means that it is a benefit provided by an employer to employees, and allows the employee to divert some of his salary into it. That portion will not be considered part of the employee's taxable income. In other words, that employee earned a lower salary than he really did for the purpose of calculating taxable income. The portion of salary that got diverted into the 401(k) goes into an account that gets invested in different ways, usually into mutual funds. Those investments grow on a tax-deferred basis, meaning that the year-by-year growth of the investments is also not added to anyone's taxable income. It only becomes taxable when it is withdrawn. Most employers will throw in a contribution to their employees' 401(k) accounts as an added benefit, by matching employees' contributions dollar for dollar, up to a point.

An IRA has almost nothing to do with your job. It's set up by you and no one makes the decisions about how it is invested except you (unless you authorize a financial advisor to manage it for you). What makes an IRA special is the fact that the government agrees to give favorable tax treatment to your contributions and/or to the growth that accrues in the investment. This favorable treatment is long and complex in its details; there are Traditional IRAs and ROTH IRAs and there are a zillion ifs and buts about different situations.

How they are similar: They are both tax shelters for retirement investing.
How they are different: One is a benefit at work and managed by a contractor called a custodian (employer-sponsored) and the other is totally up to you to create and manage (self-directed).

Having both at the same time is possible but iffy. Check with an advisor who knows you and the particulars of your financial life if you want to get into that. There are no decent get-rich-quick schemes but these are good get-rich-slow schemes, so have at it and good luck.

Deaf Mortgage · 05-14-2008, 03:31 PM

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Originally Posted by Reba

I wish I knew.

My company started deducting my pay for my 401k payments. Then, one day, the boss announced that there weren't enough people participating, so they were quitting the deduction plan. If the employees wanted to continue contributing they could do it themselves. I didn't make any more payments but I thought the money that I had already invested would at least still be in my account accruing interest. It wasn't a huge amount but it was a nice little extra for my retirement some day.

Then I decided maybe I should move it into an account that I could monitor better. When I checked on my balance, it was zero! The reason stated was that my account was no longer vested, so it just drained out.

If I had known that that would happen, I would have taken my money out a long time ago. But now it's too late.

It was a big waste of my money. I got absolutely nothing for it. I could have done better just putting it in the bank.

This sound fishy. To me it sound like company scammed you. Poke around and ask about that money. Why is it Zero balance. I have not heard any of those situation. Unless someone stole your money. That only way to lose the money if someone steals. That what I am seeing here.

Correct me if I am wrong about this.

Reba · 05-14-2008, 04:25 PM

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Originally Posted by Liza

Company match is good deal for a 401K plan, if you want to stick wih 401k plan. You make your own contribution, your company matches that amount (you get twice the money you are contributing to your 401k). Free money!

Unfortunately, my company did not invest anything. It was all my money.

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...That is very unfortunate, Reba! I don't understand. Was it simply bad management or just bad luck?

My company quit depositing my contributions, so my account become "not vested", and it became zero. The money that I had contributed was used up.

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