What is an IRA, a Roth IRA, and a 401(k)? What is the difference?

IRA stands for Individual Retirement Account. It’s a savings account that you can use to put away money for retirement, and potentially grow your funds through investment; there are tax breaks associated with an IRA. 

  • One of the basic differences between an IRA and a Roth IRA accounts is in when you pay taxes. With an IRA, you pay taxes at the time you take a distribution.
  • In a Roth IRA, you pay taxes before contributing to the Roth. 
  • An IRA and a 401k are similar in many ways. Their biggest difference is in how much you can contribute. 
  • A 401(k) is a qualified employer-sponsored retirement plan into which eligible employees may make salary-deferral contributions on a post-tax and/or pretax basis. Earnings in a 401(k) plan accrue on a tax-deferred basis.

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