401(k) – A 401(k) is a retirement savings plan sponsored by an employer. Employees can choose to have a portion of their paycheck contributed to the plan on a pre-tax basis, and the funds in the account grow tax-free until they are withdrawn. Employers may also choose to match a portion of the employee’s contributions.
IRA – An IRA, or individual retirement account, is a personal savings plan that allows individuals to set aside money for retirement on a tax-advantaged basis. There are two main types of IRAs: traditional and Roth. Contributions to a traditional IRA may be tax-deductible, and the funds in the account grow tax-free until they are withdrawn. Contributions to a Roth IRA are made with after-tax dollars, but the funds in the account grow tax-free and can be withdrawn tax-free in retirement.
Roth IRA – A Roth IRA is a type of individual retirement account that is funded with after-tax dollars, which means contributions are not tax-deductible. The investments in the account grow tax-free, and withdrawals in retirement are tax-free.
Please note that there are limits on the amount of contributions that can be made to these accounts each year and certain income limitations. It’s always a good idea to consult with a financial advisor or tax professional to understand how these accounts work and which one is best for your situation.
