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IRA vs 401k - what to do?

Think Your 401(k) Is Flexible? 6 IRA Benefits Your 401(k) Doesn’t Have

When it comes to retirement plans, IRAs and 401(k)’s provide many of the same benefits. But in certain situations, an IRA can outperform a 401(k). IRAs aren’t right for everyone, so you should become familiar with the advantages IRAs have over 401(k)’s before you transfer funds or set up a new account. To help you do this, here are a few benefits you can reap from an IRA not available in a 401(k).

1. Qualified Charitable Distributions (QCDs)

IRAs allow you to take QCDs and send them directly to the charity without including the distribution amount in your taxable income. This often results in a lower tax bill. You can also use your QCDs to offset your required minimum distribution.

2. Penalty-Free Distribution for Higher Education

A 401(k) distribution for higher education expenses will incur both a tax and a penalty. Taking an early IRA distribution to pay for higher education expenses for you or certain family members is penalty-free.

3. Freedom from Distribution Restrictions

Opportunities for early distributions of 401(k)’s are limited at best. Subject to the plan administrator’s rules as well as the tax code, 401(k)’s require a compelling reason such as a hardship, to receive an early distribution. Conversely, IRA distributions are restriction free. You can take an IRA distribution at any time and do not need an approved reason like 401(k)’s.

4. Aggregate Required Minimum Distributions (RMDs) From Multiple Accounts

If you have multiple IRAS, you can aggregate the RMDs for your accounts and then take that amount out of one or any combination of your IRAs. Doing this with your 401(k)’s results in steep penalties.

5. No Withholding

You can opt-out of tax withholding from an IRA distribution but not with a 401(k) distribution. This is a great benefit for those who end up with little or no tax liability at the end of the year.

6. Self-Direction

One of the best parts of having an IRA, instead of a 401k, is that you have the most flexibility in how your IRA assets are invested, whereas with a 401k, your investment options are limited to those provided by the 401k Administrator. With an IRA, you can move your entire retirement account into a self-directed IRA account and then invest the money anywhere you want, including in real estate and start-ups. Yes, it’s true! You get to choose. And, we can help you set up a self-directed IRA and invest your retirement account where you want.

Deciding whether to maintain your retirement account as an IRA or a 401k is a critical decision, and requires that you understand the benefits and limitations of both. Typical 401k plans include a matching provision allowing employers to contribute to your account, and withdrawals from 401k plans avoid penalties at an earlier age under certain circumstances (see for those rules).

Relying on generalized information found online is not enough to protect your best interests. Guidance from a Financial Advisor provides personalized, fiduciary client centered assistance when planning for the care of your retirement portfolio.

Thank you,


Larry Schechter, M.A.
Professional Plan Consultant®
Your Financial Concierge

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Independent Financial Group, LLC
Planned Asset Management, LLC

26135 Mureau Road
Suite 201
Calabasas, CA 91302

818-262-8080 Ph.
818-583-1758 Fx.

Securities and advisory services offered through Independent Financial Group, LLC a registered broker dealer and investment advisor. Member of FINRA and SIPC. Additional advisory services offered through Planned Asset Management. PAM and IFG are not affiliated. Member FINRA/SIPC.

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