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Back to the Basics - Retirement Cheat Sheet

401(k) or 403(b)

Easy set-up: 401(k)s are offered to employees through their company, where as individuals need to open up IRAs on their own.

Employer Match: Typically when a company offers their employees the option of putting money into a 401(k) they will match a portion of the contribution that the employee puts in.

Automation: Additionally when employees make contributions to their 401(k), the employer automatically takes the money out of their paycheck. In other words, it’s easier to set it and forget it. You won’t be tempted to splurge on a new car using your retirement money.

Limited Choices: The major drawback of a 401(k) is that it is usually fairly limited in investment choices. 401(k) participants usually have a set number of funds that they can choose from. These funds often charge high fees and may not be ideal for the investor who is deciding between them.


Flexibility: Unlike 401(k)s, individuals who have money in an IRA are able to invest their money almost anywhere with very few limitations. As a result, IRA investors are often able to find investments that they would have gotten in their 401(k), but at a much lower cost.

No Employer Match: Because IRAs are not a part of the company you work for, there is no employer match like there is with a 401(k).

No Automation: You have to consciously decide to put money in each year, as contributions are not deducted automatically from your paycheck. One-way around this problem however is to set up automatic deductions. By automatically depositing money from your bank account into your IRA you eliminate the need to make a conscious effort to save for retirement.

So Which One Should You Choose?

The first and foremost, does your employer even offer a 401(k)? If the answer is “no,” then your retirement money will be housed in an IRA.

If the answer is “yes,” then there’s one more question you need to answer: Does your company offer a matching contribution on your 401(k)?

If the answer is “yes,” then most financial advisors will recommend that you invest in your 401(k) up until the point at where your employer match ends, and then to put the remaining money into your IRA.

In terms of deciding whether to invest in a Roth account or a traditional account, the rule of thumb is as follows: If you believe your tax rate will be higher in the future than it is now invest in a Roth, if you believe it will be lower invest in a traditional account, and if you believe that there is an equal chance of both occurring then you should be indifferent to the two.