Retirement Accounts You Should Consider 401K VS IRA

Retirement Accounts You Should Consider 401K VS IRA

By Congruent Solutions

© 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

Congruent Solutions

In 1875, American Express Company started the first private pension plan. Today, over a dozen retirement plans exist, offering retirement benefits for the citizens. There are two that are most commonly used today — 401K and IRA.

You might wonder, what is the difference between 401K and IRA. In this blog, we discuss about these popular retirement plans and how you can leverage them effectively.

401K:

401K is one of the most popular retirement savings plans in the country. However, it can be obtained only by the salaried class through their employers. With a 401K plan, you don’t have to pay taxes when you withdraw money from your 401K account after your retirement or after 59.5 years of age.

© 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

Congruent Solutions

An employee can choose to contribute up to $19,500 towards his/her 401K plan. And for people over 50, the maximum cap increases, where they can choose to contribute an additional $6,500 towards their retirement plan.

Employees with 401K are also required to do Form 5500 Filing every year.

Also, every year the employee’s 401K will be put through a non-discriminatory 401K plan compliance testing to make sure the 401K plan benefits all employees equally.

IRA:

While 401K requires an employer to set up the (401K) retirement account, IRA does not require an employer to open a retirement account. IRA is for people who are self-employed, contractors, or for people who want to do extra retirement planning along with their 401k. © 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

Congruent Solutions

The contribution limit for IRA is $5,500 and $6,500 for people over 50.

IRA VS 401K — What is the difference?:

A 401K account is associated with your employment, and the contributions from your wages are taken out before taxes, while the IRA account can be opened by anyone, but the contributions are not taxed but they are deductible.

Also, if you have a 401K account, you cannot withdraw money from your account before 59.5 years old or will be subjected to penalties and taxes. Assuming you have $250,000 in your account and you want to take this amount early, after penalty and taxes you’ll end up with $180,000, which is a $70,000 loss.

IRA and 401K are the top 2 retirement payroll solutions in the United States, they both have their purposes and cater to different people. IRA on the other hand can be obtained by people who © 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

Congruent Solutions

already have a 401K account, making it one of the most flexible retirement payroll solutions. Congruent offers the best retirement and pension management software that simplify the retirement savings process.

© 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

Congruent Solutions