Many think you have to pick between an IRA or 401(k), but that’s not the case. There are notable differences between the two, so you will be able to determine which you should start contributing to first. Both of these options are great for tax-advantaged retirement saving because you don’t pay any taxes on the growth of your investments.

IRA vs. 401(k)

IRAs, individual retirement accounts, and 401(k) accounts are the two most common accounts used to save for retirement. Usually, people will choose one type of account.

If your employer offers a 401(k) with a company match, you should start funding your 401(k) first. Try to invest the maximum matching dollars your company is willing to contribute. The contribution levels are different for these two retirement accounts. 401(k) accounts have a higher maximum contribution — over three times the amount of an IRA.

Over 35 percent of private-sector employees lack access to an employer-based plan. If you don’t have an employer-based plan, an IRA account is the perfect place to start for you to save for retirement. The bottom line is if your employer doesn’t offer a company match, go for the IRA. If you max out on your contributing limit, then open a 401(k).

Two Basic Types of IRAs

There are two branches of IRAs: a traditional IRA and a Roth IRA. A traditional IRA offers a tax deduction for the tax year the investment was made and taxes withdrawals at ordinary income tax rates. A Roth IRA does not provide tax breaks for contributions, but earnings and withdrawals are generally tax-free.

When Should You Start Saving

When saving for retirement, time is your ally. Your money will grow over time when properly invested. You should start contributing to an IRA as soon as you begin working. If that ship has sailed, start now — it will be worth it.

Where Can You Get An Account?

You can get an IRA account with DEXSTA. We are a not-for-profit organization with a mission to serve our members. We accept deposits, make loans, and provide other financial services. You can contact us online, by phone, or walk into one of our branches. At DEXSTA, we want to help you reach your financial goals.