IRA or 401(k) -- Which Should Have Priority? - BCNN1

"If I can afford to contribute to either an IRA or a 401(k) but not both, which should I choose?" The question is a common one, and the answer depends on your situation. Both types of accounts provide tax-deferred growth, and IRAs have the same tax deductibility as 401(k)s (I'm referring here to the "non-Roth" variety of IRAs and 401(k)s.)

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Still, there are differences between IRAs and 401(k) that should be considered in determining which option makes the most sense in your particular situation. Let's take a look at these differences.

? Control. With an IRA, you're in control. You control which financial institution holds your IRA and, if you want to, you can choose to move your IRA to another company. With a 401(k), these decisions are at the sole discretion of your employer. So on this point, the advantage goes to the IRA.

? Investment options. IRAs aren't investment specific. In other words, many different types of investments are allowed within an IRA, ranging from CDs to precious metals. Your investment choices usually depend on the financial institution you choose to place your IRA with. For example, if you open your IRA with a bank or savings institution, you'll likely end up in a savings account or CD. These are typical bank products, and will return specified interest rate, depending on economic conditions.

If you open your IRA with an insurance company, you may end up in a fixed or variable annuity. These are the products that insurance companies manufacture. A fixed annuity is low risk and a typical return might be 3%-5%, depending on market conditions. Variable annuities have sub-accounts which are managed like mutual funds; however, due to the higher fees, the net returns to investors are not quite as good.

For most people, opening an IRA with a bank or insurance company probably isn't the best option.

SOURCE: Crosswalk

David S. Reinders, CFP, for Sound Mind Investing

Source: http://www.blackchristiannews.com/news/2012/02/ira-or-401k-which-should-have-priority.html

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