Which is better: An IRA or 401(k)?

Retirement » Which Is Better: An IRA Or 401(k)?

Option to invest in ETFs and individual stocks
Option to invest in ETFs and individual stocks © Kinga/

In most 401(k) plans, you are limited to the mutual fund choices offered by your company. However, open an IRA and you have access to the world of exchange-traded funds, or ETFs, and stocks.

"Investing in ETFs or individual securities through an IRA can have many benefits," Kubik says.

For example, ETFs typically charge lower expense ratios than mutual funds. Also, if you are someone who trades frequently, an IRA's tax-deferred status can help keep your costs down, Kubik says.

"It is easier to have a very tactical portfolio," he says. "An investor can buy and sell securities without the concern of tax consequences."

Derek Tharp, a wealth manager with Mote Wealth Management in Cedar Rapids, Iowa, says that ETFs can be a wise choice in an IRA. However, he believes that portfolios of stocks are difficult to manage and are unlikely to provide enough diversification to protect investors over the long haul.

"The average investor should stay away from individual stocks," he says.


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