Human Interest - The 401(k) provider for small and medium-sized businesses

401(k) vs. Traditional IRA vs. Roth IRA vs. myRA

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Retirement planning can be downright painful, and it’s easy to see why. Weighing all of the available options, reading the fine print, and dealing with the uncertainty of whether you’ve chosen the right plan can seem like a chore, especially given that there’s no immediate gratification. Try to remember that there are great opportunities are out there to save for retirement, and the practical, financial advantages are clear. Whether you’re an individual looking to learn more about your options, or a company representative researching what to offer your employees, we have a simple breakdown for you.

Know Your Retirement Plan Options

Generally, there are four types of retirement plans to consider: 401(k), Traditional IRA, Roth IRA, and myRA. The main differences between the plans (as demonstrated in the table below) include: alt Of those options, the 401(k) is the only company-sponsored plan and allows for the highest contributions. An IRA may be opened by individuals regardless of their employment statuses, and is often used as an option by those who do not have access to a company-sponsored plan because they are either unemployed, self-employed, or employed by a company without a 401(k). 401(k)s and Traditional IRAs enjoy tax-deferred growth, meaning you pay taxes when you withdraw assets (when you retire); Roth and myRAs however are taxed before you make contributions (but you won’t pay taxes on withdrawals while in retirement).

The Benefits of a 401(k) vs. a Traditional IRA, Roth IRA, or myRA

Some people erroneously think that, without a match, there is no point to contributing to a 401(k). However, there are many benefits to a 401(k), even without employers matching contributions. And of course, for employees of companies offering matching contributions, there are many advantages to having “free money” added into their retirement plans.

Employer Tax Benefits for Retirement Plans

There are also significant tax benefits for employers that come with sponsoring 401(k) plans. For one, the company’s match contributions are deductible on the employer’s federal income tax return. In addition, companies with fewer than 100 employees are eligible for a $500 annual tax credit up to $1,500 to offset the startup costs of a new 401(k) plan for the first three years. Fundamentally, the government wants to offer incentives and tax breaks so employers and employees can protect their financial futures. As a matter of fact, the term 401(k) is actually just an IRS tax code. We’re here to help you navigate this process. Learn more about how you can get started on the path toward a paperless, hassle-free 401(k) on our website at Image credit: US Department of Agriculture
Charity Yoro Charity Yoro

Originally from Hawaii, Charity is currently based in San Francisco. When not traveling the world — which she has been lucky enough to do a lot of — she can be found blogging about packing and living a rich life with less.

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