There are a couple of big benefits that a 401(k) plan has that an IRA does not. First, there’s that all-important company contribution. Then there’s the ease and relative painlessness of an automatic payroll deduction. If your company has done its homework, there is sufficient choice for all but the most confident personal investors. Plus, “the 401(k) gives you the biggest opportunity to defer income from state and federal taxes. In a high tax state like California, this is a very attractive tax benefit,” says Laurie Itkin, financial advisor, Coastwise Capital Group in San Diego, Calif.
There is an advantage down the road, too. “If you plan on working past 70½, you will need to take required minimum distributions (RMDs) from your IRA(s), while 401(k) balances are not part of the RMD’s until you stop working,” says Peter J. Creedon, CEO of Crystal Brook Advisors in New York City.