How Different Types of 401(k)s & IRAs Can Help You Jumpstart Your Retirement Savings?

Updated : Oct 22, 2019 in Articles

How Different Types of 401(k)s & IRAs Can Help You Jumpstart Your Retirement Savings?


Tim: When it comes to IRAs and 401(k)s, it
seems like there’s so many options. There’s traditional, there’s Roth, there’s
self-directed, there’s Solo. In this video, we share all the information
you need to know about all of those different types. Brian, I’ve got to admit it’s a minefield. Firstly, IRA versus 401(k), can you just tell
me the broad difference? Brian: The broad difference is, an IRA is
an Individual Retirement Account where you basically can invest your own earned income
into the plan, whereas a 401(k) is sponsored by an employer. That’s the basic difference. In a 401(k), you can also typically invest
more than you can in an IRA. Tim: Okay, good. So, that makes sense, that distinction. Now, I know that there’s a traditional IRA,
a traditional 401(k), and then a Roth. What does “Roth” mean? Where does that come from? Brian: The difference between a traditional
and a Roth is very simple. Whereas with a traditional IRA, the money
that’s set aside for retirement is pre-tax, and the money accrues, it’s essentially
tax-deferred until retirement, at which point you will then pay taxes, with a Roth IRA or
a Roth 401(k), it’s after-tax. So, essentially, you pay taxes on it, then
the money will accrue tax-free. So, that’s the essential difference. Tim: So, Roth really means kind of sort out
the tax up front? Brian: Correct. Tim: Okay. So, then, there are some other distinctions
here. There is a self-directed 401(k) and a self-directed
IRA. How is that distinct from a non-self-directed? Brian: Well, a self-directed IRA or a self-directed
401(k) simply means that, as opposed to the traditional type of plan which is invested
in a brokerage house and invested, typically, in stocks, bonds and mutual funds, with a
self-directed IRA or a 401(k), you have a much broader level of control over your investment. And, through a plan such as ours, you can
invest in things like real estate, precious metals, private placements, and the list goes
on and on. And, with a self-directed plan, there’s
also a Roth component. So, with a Solo 401(k), whether it’s a self-directed
Solo 401(k) or a self-directed IRA, you can invest in either traditional funds or Roth
funds. Tim: Okay, so I think I’ve got this straight. The word “Roth” basically means tax up-front. So, if I wanted, for example, to invest in
precious metals, I wanted to buy some gold and I wanted to pay the tax up-front, I would
get a Roth self-directed IRA, which would allow me to do that, or if I was self-employed
and qualified to do so, I could get a Roth self-directed 401(k). Brian: Solo 401(k). Tim: Solo 401(k). So, I’ve mainly got the terminology right. Brian: You basically do. Tim: All right, well, thank you for helping
resolve the confusion. I appreciate it. Brian: My pleasure. Tim: For anyone who’d like to know more,
or get hold of their very own self-directed IRA or 401(k), Roth or otherwise, please visit
us online at www.broadfinancial.com or give us a call and reach out, and we’d love to
help you with that.

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