IRAs and 401ks Explained

March 30th, 2016

One of the biggest financial mistakes one can make is not saving enough for retirement. Unfortunately, this phenomenon is all too common, with up to 50% of Americans estimated to have no retirement savings at all.

There are multiple types of retirement plans, and you’ll want to choose one that best fits your needs. The most popular are traditional IRA, Roth IRA, rollover IRA, and 401k plans.


An Individual Retirement Account, or IRA is an independent investment account that allows you to save for retirement. A financial institution of your choosing sets it up, and the funds in it will accumulate tax-free, or tax-deferred.

There are many different IRAs, but the three most common types are:


The 401(k) retirement plan refers to the Internal Revenue Service (IRS) tax code. It is the most common plan, and is usually provided by private sector employers. With a 401k, you place a portion of your monthly earnings in a retirement fund, and your employer will usually match your contribution up to a certain percentage.

Most employers will allow their employees to contribute up to 25 percent of their earnings. However, keep in mind that the IRS sets an annual limit on how much money you can contribute to your 401k. You’ll want to speak with your Human Resources representative, or a financial advisor, for more information.

There are also two main types of 401k plans your employer may offer. They are: