Individual Retirement Accounts

• Individual Retirement Accounts offer individuals the opportunity to save for retirement with flexibility and personal control. With an IRA, you choose the investment plan and provider that makes the most sense to you, and investments within the plan may be changed at any time. You invest after-tax income into the account and are never required to pay taxes on it or its earnings again. What's more, you can withdraw your contributions from the IRA at any time without penalty. You can even trade stocks within your IRA. IRAs (and "Roth" IRAs) provide investments that remain flexible and available to you while they grow.
  
  

401k Retirement Accounts

• 401 retirement accounts (so named for their IRS designation) are invested in through your employer, and your employer manages the investment and chooses how the account is used. 401s offer two unique financial benefits. First, all funds are contributed before they are taxed, allowing the investor to save potentially thousands of tax dollars every year. Secondly, some employers match a portion of their employees' 401 contributions, providing additional compensation as free money for the employees' retirement.
  
  

Contributions

• Contributions to IRAs are after-tax dollars, and are limited to $5,000 per year as of February 2011, and this limitation is tied to your income. Therefore, your IRA can only take limited advantage of its investment terms. In contrast, 401 contributions are tax-free, and may be made up to $16,500 per year as of February 2011, nor are they limited by the contributor's income.
  
  

Withdrawals

• Withdrawals from IRAs may be made at any time without penalty, and there are no times when withdrawals from the account are mandatory. With 401 accounts, withdrawals may not begin until you are 59 1/2 years old, and withdrawals become mandatory at age 70 1/2 years old.
  
  

IRAs and 401s Together

• For individuals who can afford to, investing in a combination of IRA and 401 accounts may be the best retirement plan of all. An employee can first invest in her 401 account to guarantee she receives her employer's matching money, the invest in an IRA up to its maximum amount to enjoy its flexibility, then return to investing in the 401 account up to its maximum contribution in order to enjoy maximum tax savings.