Now is always a good time to start planning for your future. Yes, even during a pandemic. You might already be saving in a work-sponsored 401(k) — and that’s great — but here’s why you should consider opening an IRA as well.
There are some key differences between a 401(k) and an IRA and Roth IRA. As Money reports, a 401(k) is great because you likely have some sort of employer match to contributions. And because the annual 401(k) contribution limit for 2021 is $19,500 — and just $6,000 for IRAs — the 401(k) gives you plenty of savings power. The IRA, however, has its benefits too. If you want to leave your job, you can rollover your 401(k) into an IRA. Also, with a Roth IRA, you pay taxes up front, but then when retirement comes, you can make tax-free withdrawals. You can also withdraw contributions with no penalties. If you make withdrawals from a 401(k) or traditional IRAs before age 59.5, you’ll have to pay income taxes and a 10 percent penalty.
If you have a 401(k), you should make the max contributions. If you are doing that, and you still have extra money to save, opening an IRA or Roth IRA could be a good idea. You can simply use the IRA for stashing raises or other cash windfalls. With both a 401(k) and an IRA, you’ll be maximizing your savings capabilities, staying nimble in case of a job loss and taking advantage of the pros each plan offers.
