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Your questions answered: IRA vs 401k

By
The Swell Team
August 24, 2018
5 min read
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Introducing our newest series, Your Questions Answered! You asked, we delivered - some of your most pressing financial questions answered by our very own financial gurus.

What is the difference between an IRA VS 401k? Great question.


IRA stands for Individual Retirement Account. An IRA is funded after you’ve received your paycheck, meaning you contribute with money straight from your bank account.

For a lot of us, the most we can contribute each year to our IRA is $5,500. If you’re self-employed you can put in up to $55,500 annually.

A 401k is your company sponsored retirement account.

Your 401k is funded with pre-tax dollars, meaning the money comes out of your paycheck before taxes are taken. This is great because you can contribute more without really missing much from your pay.

If you’re under 50, you can save $18,500 each year. If you’re over 50, you can save up to $24,500 annually.

Both an IRA and 401k are designed for long-term growth and are meant to be used for your retirement. There are some circumstances where you’re able to take your money out before retirement, like purchasing your first home.

You’re able to save much more with a 401k, and if you’re lucky your employer will even match some of your contributions. If they offer a match, always take it – it’s basically free money!

However, you’re also locked into investing into whatever fund they’ve selected for the company.

For example, the most popular 401k plan in the US has a major oil company as one of its top holdings, so be sure to look carefully at what you’re actually holding.

IRAs give you the freedom to invest in whatever you like, like companies at the forefront of renewable energy technology.

So which account is a better choice? Neither! They each have their pros and cons, but they really do work best together.

Most of us have some old 401ks out there stranded in the ether, being eaten away by fees. By getting all of your accounts into one place, it’s easier to manage your finances and keep an eye on your future.

Rolling over your old 401ks into a Swell account couldn’t be easier. Our white glove service will take care of everything in just 3 days.

How? With your ok, we go ahead and collect all of your accounts and roll them into one neat Swell IRA, investing them into innovative high-growth companies.

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