Reliability and good accumulated profitability are the key criteria for choosing a pension plan. Let’s consider 401K vs IRA.
Within the 401K plan, employees are allowed to contribute to their personal accumulative pension accounts a portion of their salary before paying income tax within the framework of defined contribution pension workplace plans. Employers can voluntarily contribute funds to the same accounts. Such payments are not taxed. The share of employer contributions ranges from 10% to 100%. Employees receive ownership of their contributions from the moment they are paid. It usually takes 5-6 years from the moment they join the specified plan before employees receive inalienable ownership rights for employer`s contributions. The 401K pension plan allows you to get about 9% per annum.
A typical 401K plan assumes to choose between an equity fund, a balanced fund (60% shares, 40% bonds), shares of an employer, a bond fund, some specialized equity fund and a guaranteed fixed-income investment contract.
IRA (Individual Retirement Account) is an individual retirement account, an important component of the accumulative pension system of the United States. This is an account opened by the depositor and managed by him independently. Such an account can be opened in almost any financial institution: in a bank, mutual fund or brokerage company. This retirement account is not subject to taxation, provided that the American payer does not withdraw money until he reaches the age of 60.
So, if you have enough financial literacy, you can independently manage your retirement savings with IRA. If you feel more confident by trusting professionals, then the 401K suits you.