401(K) Vs Real Estate Vs IRA

Whether or not you are an active investor, you likely value the idea of having a plan in place for retirement. In order to ensure you have a sound retirement strategy in place, it’s important to review and compare multiple investment opportunities. In addition to the wildly popular 401(k), which most people are granted access to through their jobs and careers, those looking to retire comfortably have at least two more options at their disposal: real estate investing and an individual retirement account (IRA).

Real estate investing, IRAs and 401(k)s have all been helping people retire comfortably since their respective introductions into society. It is worth noting, however, that while each of these retirement vehicles has the same objective, the means by which they go about doing so is uniquely different. Continue reading to answer any questions you may have on the 401(k) Vs real estate Vs IRA debate.

401(K) VS IRA

In their simplest form, 401(k)s and IRAs are effective retirement savings vehicles. However, while each is intended to pad one’s own retirement savings, they go about doing so in different ways. In fact, the differences between the two are significant enough to warrant a discussion. Therefore, instead of sparking a 401(k) Vs IRA debate, let’s first clarify what differentiates these two retirement plans from each other.

For starters, 401(k)s are only offered through employers, whereas any individual is free to open a Roth IRA or traditional IRA. In other words, anyone can open an IRA, but to gain access to a 401(k), one must be offered the plan through their employer.

In addition to who they are offered to, 401(k)s and IRAs also differ in another significant area: their investment options. Since IRA accounts are typically held by custodians, not unlike a bank or brokerage, it’s quite common for them to award their account holders with the opportunity to own many different assets, including stocks, bonds, Certificates of Deposit (CDs) and even real estate. Conversely, 401(k)s are slightly more limited in their offerings, primarily allowing their account holders to invest in mutual funds specifically tailored to their risk tolerance.

The differences between 401(k)s and IRAs aren’t only noticeable in their investment options, but also in the way they are viewed by The Federal Government of the United States. More specifically, money contributed to either of these accounts is taxed differently. Contributions made to a 401(k), for example, are tax deductible, regardless of how much money the investor makes.

Not unlike a 401(k), contributions made to an IRA are also tax deductible, but with a simple caveat: IRA contributions are tax deductible only if the investor’s modified adjustable gross income (MAGI) is under a certain amount. As contributions approach the predetermined limit, the amount investors may deduct are proportionately decreased. Roth IRA contributions, on the other hand, are not tax deductible, but the money in the account is permitted to grow tax-free.

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