No employer 401(k) match at the office? No problem

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More savings opportunity. The maximum amount a person under 50 years of age can contribute to an individual retirement account is $5,500. If you are over 50, the IRA maximum is $6,500. Compare this to the maximum an employee can defer into a 401(k) for 2018: $18,500, plus an additional $6,000 for those 50 and older. It’s evident that a 401(k) plan allows employees to save significantly more in their 401(k) plans than what they would be allowed to save in an IRA.

No income limitations for Roth contributions. Another key factor is that 401(k) plans do not have an income limitation when it comes to making Roth (or after-tax) contributions. Roth IRAs, however, do have income limits, which kick in when people make a certain amount of money when filing as a single filer or married couples filing jointly and qualifying widow filers. The income limitations phase in for single filers at $118,000, and people become completely ineligible once they earn more than $133,000. For married couples filing jointly and qualifying widow filers, the income limitation phase starts at $186,000, and people are completely ineligible at $196,000. (The numbers mentioned are for 2018 tax filing year.)

With a 401(k) plan, a person’s taxable income does not factor into the ability to defer into the Roth portion.

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So you’re a 401(k) ‘millionairess.’ Now what?

You can take a loan — and pay yourself interest. Although this is rarely recommended, people can take a loan from their 401(k) plan. This feature is not allowed with IRAs. In the case of an IRA, people can withdraw money from it and, as long as they re-deposit it within 60 days, it is not considered a taxable distribution. I’m not recommending that anyone take a 401(k) loan, but if a person is caught in a financial hardship and is low on existing cash, it may be a helpful way to access cash without having to take a distribution.

Additionally, one of the benefits of a 401(k) loan is that the interest incurred is paid back to the participant taking the loan. However, any new deferrals are turned off until their loan is paid back in full.

You have the stable value fund advantage. Stable value funds may be the most unsexy investment in a 401(k), but there are some advantages to them. Stable value funds exist only in employer-sponsored retirement plans; you cannot access one via an IRA. These funds act as a cash alternative in retirement plans and will provide investors will an interest credit. This interest rate is low right now but is typically higher than what can be earned in a money market account, which is a common cash alternative in IRAs.



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