The Differences Between a 401k and an IRA

With a 401k, it is pre-tax income. So that means you're reducing the total income that you have to declare on your taxes and so you're lowering your tax burden. There are now also Roth 401ks, which is an account that you fund with money you have paid taxes on. In both cases, the money grows tax-free. You do not have to worry about paying taxes while it is growing. With traditional IRAs, once you reach age 72, Uncle Sam will want you to take at least this much out this year because they want you to pay taxes on it. It's up to you to make sure you take out that minimum distribution each year.