An Individual Retirement Account "IRA" is a special type of retirement plan, offered by several financial institutions, which allows tax advantages on the retirement amount savings. Basically, the IRA is an investment tool employed by individuals to make financial provisions for their retired life. There are many types of IRA plans - traditional IRA, Roth IRA, simple IRA, and sep IRA. The 401(k) plan is actually a plan based upon the regulation defined under subsection 401(k) of the Internal Revenue Taxation Code, according to which the retirement savings contributions offered by the employer are to be deducted from the employee's paycheck before it is subjected to taxation. The employee ends up paying tax on the paycheck amount minus the monthly contribution towards the retirement fund. Both these plans offer tax advantages if one complies with the IRS regulations. Careful planning with these plans results in little or no tax ramifications. In certain cases, the retirement savings provisioned by the IRA and the 401(k) can be used to purchase your home or any other fixed asset(s). However, it is not always the case, and if you are planning to make such a purchase, it is important to know how you stand with the issue.
