Most actively working individuals have at least once arrived at the point where they started wondering about the time when they will be retired. Amidst the current economic situation on the markets, the volatility and uncertainty of investments, it seems ever more demanding a task to get a solution for the times after retirement.

People usually have several options to choose from and the 401(k) plan and the IRA plan being two of the most commonly applied retirement investment tools. There are some significant characteristics of both plans that employees must bear in mind when choosing what is best for them.

Some specialists suggest that, given the choice, employees should better plan on a 401(k) plan since it offers some more advantages over traditional IRAs. One such benefit is that, with the first plan, the quantity that might be invested is usually higher than the one with traditional IRAs.

401(k) plans typically offer a remarkably easy process of saving cash for your retirement years. The quantity that the employer normally withholds represents a particular agreed-on percentage of your wage, which goes in your personal investment basket.

This retirement plan practically allows the company to establish matching funds, which in numbers will show, let’s say, that if you are able to save $ 1,000 in your plan during the first year, your employer will match that amount, as well as you will end up having $ 2,000 saved for retirement.

Furthermore, while traditional IRA plans envisage penalties on early withdrawals (i.e. withdrawing of funds before the owner is at the age of 59 1/2), the 401(k) plan allows for “borrowing” cash from the fund provided that you pay it back, as well as no penalty is incurred with that respect.

IRA plans, on the other hand, come to represent a fairly flexible and convenient investing tool because they can be invested in almost everything, bonds, mutual funds, CDs, etc. This availability of options is somewhat limited with the 401(k) plan and frequently is decided next to the employer.

A significant difference between the two retirement plans is the freedom you need to manage them. While the 401(k) plan is usually configured through an employer and includes all of his/her employees, the IRAs practically depend on the personal decision of the individual. You need to set them up on your own, but you can trust their management to specialized institutions, approved next to the IRS. In this way, you won’t need to do anything since the institution will be authorized through you to automatically deduct the contributions from your accounts.

No matter which retirement plan you determine to choose for yourself, you should make sure that it is in perfect balance and meets all your needs. Although it looks difficult to make sense of the differences involved in the two retirement plans, you should consider having one if you have not undertaken one yet.

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