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IRAs, 401(k)s…There Are So Many Retirement Account Options. What's The Difference?

With the variety of retirement options available, it can be a challenge to figure out what one (or more) is right for you. All retirement accounts offer tax benefits; however, they are not all alike. Here's an overview to help you.

401(k), 403(b) and 457 plans are employer-sponsored retirement plans. Contributions are deducted from your paycheck pre-tax. Many employers provide matching funds based on how much you contribute to the plan.

There are two types of IRAs to consider. One is a tax-deferred (Traditional IRA), while the other is tax-free (Roth IRA).

Traditional IRA

  • Contributions are tax deductible
  • Withdraws can begin at age 59 1/2 and are mandatory by age 70 1/2
  • Taxes are paid on earnings when withdrawn from the IRA
  • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
  • Traditional IRAs are available to everyone, and there are no income restrictions
  • All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty (some exceptions apply)


Roth IRA

  • Contributions are not tax deductible
  • There isn't a mandatory distribution age like the Traditional IRA
  • All earnings and principal are 100% tax free if rules and regulations are followed
  • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
  • Roth IRAs are available only to single filers making up to $135,000 or married couples making a combined maximum of $199,000 annually
  • Principal contributions can be withdrawn at any time without penalty (subject to some minimal conditions)

The biggest difference between Traditional and Roth IRAs is the way the U.S. government treats the taxes. Meet with a financial planner or IRA specialist to determine which IRA product best suits your needs.

For additional details:

IRA Specialist: (800) 283-2328, ext. 6022

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