AboutJohn D Smith, CFP Expertise I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related financial planning/investment issues. I have a B.S. degree in Financial Planning & Counseling. I am also a Certified Financial Planner (CFP) and have performed fee only investment management and financial planning services for the past 11 years.
Question my question is this would a 401k or an ira be better to use for retirement my wife is a teacher in texas and we can participate in a 401 k tthrough them or we can open and ira on our own we are both 44 and have put this off long enough can you advise whats the best route to go thanks for your time
Answer Hi. The general concept of 401k and IRA are the same in that the dollars inside of the account grow tax deferred until withdrawn and once withdrawn the amount taken out is condidered taxable income. With a 401k, the dollars put into it are taken out of her paycheck, pre-tax, which means it resutls in immediate tax savings. With an IRA, there are exceptions to this, so the contributions may or may not be tax deductible. Another difference between the 2 are the contribution limits as you can put more $$ in a 401k than you can an IRA. Finally, with the 401k, her company may have some sort of matching policy where they will put $$ in that are matched to what she puts in. If her company does this, then the 401k is definately the better option since this is additional $$ she would not normally receive. If they do not offer a match, then the 401k is more than likely still the better option since the contributions will be tax deductible and the amount she can contribut is higher. The one drawback to some 401ks is the investment you can choose from as 401k's typcially do not offer the same breadth of options and the invesmtment control that an IRA offers. I hope this helps.
