There are so many different ways to save for your retirement that it can be challenging to decide which ones you should use and how much money you should invest in each one. Two of the most widely used retirement investing products are the IRA and the 401(k). With the advice of a skilled accountant like Daren Katayama, CPA, in Kailua-Kona, HI, you can figure out which of the two options makes the most sense for your retirement goals.

IRA

With an independent retirement account (IRA), you contribute money on a regular basis and the financial institution managing your account will invest in a diversified portfolio to help your money grow in a safe and consistent way. The key benefits include:

• All contributions to your IRA up to the annual limit are tax deductible as long as you don’t make any withdrawals.
• Interest earned on your investments are tax-deferred, so that money is yours as long as you keep it in the IRA.
• In an emergency, you can make withdrawals. It’s not recommended because you’ll take the hit on your taxes, but it is a good last resort to have.

Your accountant can completely manage the portfolio for you to help you strike the right balance between strong growth and minimized risk but you also have the option to manage your own investments.

401(K)

The 401(k) works like an IRA: you make regular contributions and that money is invested in a portfolio. The interest earned is also tax-deferred. However, you don’t have as much control over those investments because your employer manages the account. You often won’t even be able to work with the accountant in charge of the portfolio. For all that, there are these perks:

• You can contribute more to your 401(k) than you can to your IRA. If you have both accounts, you can contribute the maximum to both without a problem.
• Most employers offer some degree of matching contributions, meaning they will contribute money to your account when you contribute. For example, they might offer 50 cents for every dollar or they might cap it at a certain dollar value. Either way, this is free money, so you should contribute enough to your 401(k) to get the maximum employer contribution.

If you’re ready to start making progress toward your retirement goals, work with certified accountant Daren Katayama, CPA. His team of professionals offers Big Island residents and businesses a full range of financial services, including retirement planning, tax return preparation, and bookkeeping. Call (808) 329-6635 or visit the website to learn more about their financial services.