How to Benefit by Investing in a 401k and IRA

Many people choose one type of retirement account and stick with it but if  you can consider expanding your retirement portfolio by investing in a 401k and IRA. You can benefit and build up your retirement account. However, if you are not careful, you can decrease your effectiveness and it will not help you in the long run. Here are a few important things to keep in mind if you are considering investing in both a 401k and IRA.

Using a 401k With an IRA

A 401k offers a few things that an IRA cannot. Some employers offer a match program with a 401k account. If your employer offers this type of program, you will definitely want to get involved. A matching program offers you free money to invest in your retirement account. Each investment has a cap on the amount that you can invest. Therefore, you will be able to put more money away faster by utilizing both options. With an IRA, you can invest in many different things. If you know of a great investment, you could utilize an IRA to get involved without paying taxes on the return. This will also allow you to contribute more of your income towards your retirement instead of stopping at the 401k cap.

Costs of Splitting Up

The downside to using both forms of investment is the cost of splitting up your money. When you have a large account, the interest will add up faster. Compound interest is powerful and splitting your accounts up tends to negate that advantage. Make sure that you understand the risks and rewards of using a 401k and IRA before you get involved by speaking with a qualified financial advisor.

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