Like a 401(k), an IRA is a retirement savings account. You put money in it, and use that money to invest. But unlike a 401(k), an IRA does not have an employment requirement. IRA stands for Individual Retirement Account; anyone, even if he is not employed, can contribute to an IRA unless his income is too high. This works perfectly for freelancers such as my friends that are dancers and do not work for any particular company.
This post has 3 parts. Part 1, I explain what a 401(k) is. Part 2, I explain how you contribute to a 401(k). Part 3, I explain why you should contribute to a 401(k).
Part 1. What the heck is a 401(k)
A 401(k) is a retirement savings account sponsored by employers. In order to contribute to a 401(k), you need to be employed.
I’m sure you have heard of these terms before. They probably appear on the media more frequently than the Kardashians. Traditional 401(k), Roth 401(k), Traditional IRA, and Roth IRA are 4 types of retirement savings accounts.