Three Advantages An IRA Has Over A 401(k)


Most Americans understand how important it is to save. A recent Gallup poll indicates that nearly 2/3 of Americans prefer saving to spending.

How much – and how – Americans save lags the strong desire reflected in that Gallup poll. The  median amount in a 401(k) savings account is $26,405, which means half of savers have less than that figure in their account.

It’s not just how much we have saved – it’s how. While many Americans may have an idea of what a 401(k) plan is, a recent study showed that only 18 percent of Americans contribute to an IRA, and 43% couldn’t even describe what one was.

IRAs and 401(k)s do share some similarities: both can help you save while lowering your tax bill now, both provide an income source in retirement, and both provide tax-deferred growth. There are some differences between the two types of accounts. Here are three advantages an IRA has over a 401(k) savings account:

You Can Take A Distribution To Pay For Higher Education

Because IRAs are for your retirement savings, taking a distribution from your retirement before you’ve turned 59 ½ will generally result in paying a penalty, along with income tax ramifications. But there are exceptions which allow you to withdraw without paying the penalty. You are allowed to take a disbursement for college expenses, which include tuition, books, a computer, or other required supplies.


Your Investment Choices Are Expansive

A 401(k) offers investment choices offered by its plan sponsor, which usually maxes out at 20 or 30 different options.

Your investment choices for an IRA are much more expansive. Instead of the list of opportunities offered through a 401(k) plan sponsor, you would be able to invest in any publicly traded individual stock, ETF, or bond that you feel meets your risk tolerance and financial plan.

You Can Make A Qualified Charitable Contribution

In most cases, funds distributed from a traditional IRA are included in your income for that year. Qualified Charitable Contributions allow IRA owners and IRA beneficiaries age 70 ½ or older to send up to $100,000 from their IRA directly to a charity.

A QCD won’t count as a tax deduction, though, but the amount of the distribution wasn’t added to your income, either.

Take full advantage of the tools at your fingertips built to help you save. If you’d like to learn more about IRAs, or are interested in taking advantage of an IRA as part of your portfolio, give us a call at 262-786-6363 or 920-903-9800.

Advisory Services offered through Annex Wealth Management®, LLC.
Securities offered through H. Beck, Inc Member FINRA & SIPC.
Annex Wealth Management®, LLC and H. Beck, Inc are separate and unrelated companies.

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