Ira, 401k or the Best of Both? With Mark Biller » Audio Archive » Faith & Finance

Ira, 401k or the Best of Both? With Mark Biller

Faith & Finance

Christian talk radio with Rob West

December 4, 2021

You can’t invest in anything without first making a decision. And some of those decisions are bigger than others! Should you invest using an IRA or 401k? Or is there a way to have the best of both worlds? Mark Biller with Sound Mind Investing joins Rob West today to help you sort out your investing options. Mark is the executive editor at Sound Mind Investing. 401Ks and IRA are similar in many respects, and both offer significant tax advantages. But before you choose the best investment vehicle, make sure you’re ready to invest. ●Before investing, make sure you have adequate savings and little to no debt apart from a mortgage and, possibly, school loans. ●Next, determine how much you need to invest each month to reach your retirement-funding goal. The Fidelity Retirement Score calculator is a terrific free resource to help you make that determination. If both of those boxes are checked, you’re ready to choose between a 401K and an IRA. 401K EMPLOYER MATCHES: The first thing to consider is whether your employer matches a portion of what you would contribute to a 401k. If so, terrific! That match is the easiest money you’ll ever make. If a match is available, contribute the full amount eligible for the match. Caution: Some 401k plans have vesting rules that restrict access to the matching money until you’ve worked at the company for a certain number of years. So find out if your 401k plan has a vesting requirement. At this point, your decision largely comes down to how you intend to invest this money and if the options in your 401k plan are aligned with your needs. If your 401k plan is well aligned, great! But if you would like options not offered in that plan, then you’ll want to consider an Individual Retirement Account (IRA). IRA CONSIDERATIONS: You will need to look into the eligibility requirements for IRAs, but if you’re a married couple with earnings of less than $100k per year, you’ll be eligible for fully deductible contributions to an IRA. ROTH IRAs: The contribution rules for Roth IRAs are different. With a Roth IRA, there’s no immediate tax benefit, so the rules are looser. A married couple’s income has to be below $198,000 to make a full contribution to a Roth IRA. But again, please look into the rules and eligibility requirements before making a decision. If you’re eligible for an IRA, Sound Mind Investing typically suggests investing in an IRA once you reach the matching limit in your 401k because of that greater flexibility in terms of investment choices. OTHER CONSIDERATIONS: One potential downside to IRAs is that you may not be able to contribute as much as you’d like. The IRA contribution limit is only $6,000, with an additional $1,000 catch-up amount allowed for anyone age 50 or older. However, if you’re married, you can effectively double these amounts by opening IRAs for both you and your spouse. If you’ve maxed out your employer 401k match AND maxed out IRA contributions, you can then turn back to your workplace 401k plan, which has much more generous contribution limits. Both 401ks and IRAs offer tremendous tax benefits, but they come with significant restrictions in terms of your access to that money. Making an early withdrawal from a retirement account can be costly. So you don’t want to put money into one unless you expect to leave it there until retirement. There are, however, some specific exceptions to these rules. LISTENER QUESTIONS: On today’s program, Rob also answers these listener questions: ●What kind of life insurance policy is right for you? ●Where can you find information on companies you can invest in that are aligned with Christian values? ●Should you prioritize paying off debt sooner or investing more? OTHER RESOURCES: Other resources mentioned during today’s program: for information on Biblically responsible investing - Investing that makes the world rejoice - values-based investment options Remember, you can call in to ask your questions most days at (800) 525-7000 or email them to [email protected] Also, visit our website at where you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. Like and Follow us on Facebook at MoneyWise Media for videos and the very latest discussion! Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking the Donate tab on our website or in our app.

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