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Politics : Ask Michael Burke
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To: re3 who wrote (92401)9/23/2001 11:58:51 AM
From: Don Lloyd   of 132070
 
ike -

...can you quickly explain how the 401k system works in the u.s. and how it is different than an ira...

Compared to a traditional tax-deferred IRA -

1. Deducted from pay before tax instead of being a deduction on the taxpayer's return. This is a wash.

2. Program is the result of a contract between the employer and the custodian/provider instead of being an arrangement between the individual and the custodian. This means limits on investment choices and less flexibility, with a wide variation from one employer to another.

3. Employer may match a portion of employee contributions.

4. 401k may usually be borrowed against.

5. Annual contribution limit has been $10k vs $2k, although both limits are being raised.

6. At employment termination, the 401k can be rolled over into a traditional IRA without cost, so they are effectively identical after employment ends.

Regards, Don
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