If you are working to get your pay, you should be thinking of the future as you will not be working forever. This is simply to say that you should prioritize on saving for your retirement. Sooner or later, a time will come when you will not have that regular paycheck.

There are two main forms of saving for retirement which are as follows:

1. The 401(k)

2. The Self-Directed Individual Retirement Account or IRA.

You have the option of investing in both of these retirement savings schemes, but there are some things, certain factors that you should know about them before choosing one.

Retirement savings accounts have a tax advantage over other kinds of investment plans. If you choose to open a 401(k) account, you will not have to pay taxes on the money until the day that you chose to make a withdrawal. The higher your contributions, the lower the amount of tax you will be charged. On the other hand, if you chose to invest in a self-directed IRA. you will be taxed on every deposit hence being exempted from it when making withdrawals.

Contributory Amounts

Both of these retirement plans have a maximum amount of contributions that you can make. The limit varies with the financial year plans, but the 401(k) has a higher limit than its IRA counterpart.

Loans

With the self directed 401(k) retirement plan, you can borrow your own money and pay it back with interest. This is a good benefit, as you get to save more while using your own money. When it comes to the IRA, you are limited to stashing your money in your account and waiting till the time you retire.

Preference of Investment

With the 401(k) plan, your employer chooses the financial company that you would be asked to invest in. This plan allows for limited number of investments and they are based on financial goals and the amount of risk that you would want to take. On the other hand, you will have more independence in IRA plans as you can invest in whatever you like to invest in. You can choose any stock or mutual fund that the financial company has to offer.

Employer Contributions

With the IRA, making contributions is all a one sided affair. With the 401(k) plan, your employer makes a matching contribution to whatever you deposit. However, this money is limited up to a certain percentage of your salary. The other thing is that you will have to be chained to the same company making these contributions for a certain number of years before it is really yours.

Evaluate the advantages and disadvantages of both the plans before you invest in any type of retirement plan. This will let you save confidentially for your golden years and help you maximize your returns.

Rick Pendykoski is the man behind the sdretirementplans.com, a site solely focused on giving honest and personal service and advice regarding the self directed 401(K) plans to their customer.