Answer: A 401(k) retirement plan is a type of employer-sponsored retirement savings account. It allows employees to contribute a portion of their salary on a pre-tax basis towards their retirement savings. The contributions are invested in a variety of investment options, such as stocks, bonds, and mutual funds, and the earnings grow tax-deferred until withdrawal during retirement.

Answer: A Traditional IRA (Individual Retirement Account) is a type of retirement savings account that allows individuals to contribute a portion of their income on a pre-tax basis. The contributions and earnings in a Traditional IRA grow tax-deferred until withdrawal during retirement. The contributions may also be tax-deductible, providing potential tax benefits in the year of contribution.

Answer: The key differences between a 401(k) and a Traditional IRA include:

• Eligibility: 401(k) plans are offered by employers to their employees, while Traditional IRAs can be opened by individuals independently.
• Contribution Limits: 401(k) plans generally have higher contribution limits compared to Traditional IRAs.
• Employer Contributions: Employers may choose to match a portion of their employees’ 401(k) contributions, providing additional retirement savings.
• Investment Options: 401(k) plans often have a limited range of investment options selected by the employer, while Traditional IRAs offer a wider range of investment choices.
• Withdrawals: Withdrawals from a 401(k) plan are generally subject to penalties if taken before the age of 59 ½, while Traditional IRA withdrawals may be subject to penalties and taxes.

Answer: The choice between a 401(k) and a Traditional IRA depends on various factors, including your employment situation, income level, and retirement goals. If your employer offers a 401(k) plan with matching contributions, it can be advantageous to contribute to take advantage of the employer match. Additionally, if you have reached the contribution limits of a 401(k) or do not have access to one, a Traditional IRA can be a valuable retirement savings tool. It is recommended to consult with a financial advisor to determine which retirement plan aligns with your specific circumstances and objectives.