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***One of the most popular alternate options to the 401k is the IRA. An IRA, or independent retirement account, has two main varieties. Your choice will depend in part on how similar to the traditional 401k you are looking for your account to be.

An IRA is different from a 401k account in one main way-control. An independent retirement account gives you a lot more control over your investments. Where you would go through your employer and pick from a couple of plans that were grouped together investments for you to choose from, you will now do everything on your own, independently. You go out and find a financial company to handle your account and then pick through a seemingly endless number of options for how you would like to invest your retirement savings. This has both the benefit, and the downside, of more control in your hands. It means you’ll need to do a bit more work to pick out your investments (unless you hire someone you trust to handle this for you), but it also means that you have more options for what you want.

A traditional IRA is a lot like a traditional 401k in that your contributions are taken from your income before taxes are taken out. This means that some of the money you would currently be spending in taxes is instead being invested and earning you returns. When you make withdrawals in retirement you will then pay taxes on this income.

Another option is a Roth IRA, which takes your contributions from your income after taxes. This means that when you make withdrawals in retirement you will not be paying taxes.

What some people choose to do is to invest in a traditional account from their employer and then set up a Roth IRA, in order to diversify their tax obligations in retirement. This is entirely up to you, however, as not every path will work for everyone.

If you’re looking for alternate options to the 401k, an IRA is a great option that will give you a lot of control over your investments.

Retirement accounts don’t have to be so confusing. Learn more about your retirement savings options like IRA and 401k maximum contribution limits, balance questions, IRA options, and the early withdrawal 401k penalty.
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***There are a lot of differences, and even more similarities, between a traditional and Roth IRA, but the key factor in how the two differ is in your future, and current, tax obligations.

An IRA is an independent retirement account, which means you set the account up on your own and maintain it on your own, whereas a 401k is set up through your employer. You can go to a financial institution and with the help of a financial adviser, or your own knowledge, choose every detail on how your money will be invested. This is true with either type of account.

A traditional IRA, in terms of taxes, is set up very similarly to a traditional 401k. Your contributions to the account are taken from your income before taxes are taken out. The percentage of your income that you owe to taxes each year changes depending on your income bracket. If you make less money you pay a smaller percentage of your income to taxes. Because your contributions are taken out before taxes are taken out your income level lowers, which may lower you down to a lower tax bracket, meaning you owe less money in taxes this year. When you withdraw from your account after you reach retirement age that you’ll then be paying taxes on this money. So, if you believe you will be withdrawing small amounts of money/having a lower income in retirement, then you may prefer to put off paying taxes on this income until you reach retirement age.

With a Roth IRA your contributions are taken from your income after taxes are taken out. When you withdraw from your account after reaching retirement age you will not be paying taxes on your withdrawals. This means that you are paying taxes on that income now.

Of course, it can be hard to feel confident about what your income level will be in retirement, or in any of your investment decisions. For more answers you can always talk to a financial professional, or read more to better understand your options. Don’t let this fear stop you from investing, however, because the most important thing is simply that you are saving for retirement.-