Whats the difference between a 401k and an IRA?
Both offer you ways to invest for retirement. The key difference between the two is the way the Internal Revenue Service views the dollars you contribute. Since your 401K contributions are considered deferred compensation, they’re not included as income for federal tax purposes on your W-2 form. IRA contributions aren’t always fully deductible from your taxable income, and the maximum amount you can contribute each year is generally lower. A 401K plan also offers the added advantages of payroll deduction. What if my company goes bankrupt? How is my 401K money protected? The Employee Retirement Income Security Act (ERISA) of 1974 established guidelines for how money in 401K plans is maintained. The upshot of it is that your 401K plan account is not considered an asset of your employer. It is held in trust in a separate account for you. This means that your plan money (which includes all your own contributions and all vested company contributions) is not mixed with your company’s money.
