Question

How does ERISA differ than IRA and 401Ks? They all seem to be retirement accounts for future benefits, but are there differences? Are the risks and benefits the same or different in each?

Answer 1

Difference between IRA and 401Ks with proposed benefits:

• 401(k) plan is an employer-sponsored plan, hence only for employees while IRA is for anyone under the age of 70.5 who earns income
• 401(k) plan usually has better creditor protection than an IRA
• 401(k) plan contributions are made via payroll deductions by employer, while IRA contributions are done by the individual
• 401(k) plan contributions are higher compared to an IRA
• 401(k) Plan can offer loan privileges. An IRA does not have one
• investment options in a 401(k) are limited than an IRA

As a matter of risk, both can be subjected to litigations by the government. So safety of fund protection can be a challenge as per The Employee Retirement Income Security Act, or ERISA. Also, it is further dependent on the size of a company. In 401 (k), employer, not the employee, reaps the tax benefits of the retirement contribution.