How IRAs Work And Why They Are More Popular Than 401(k)s

Choosing the right retirement account that best suits your needs is a vital step in making sure you are well prepared for retirement. So what is the real difference between a 401(k), an IRA and HSA? And how do you know which one is right for you? Watch the video to find out.

When people think of retirement savings, plans like 401(k)s and IRAs probably come to mind. But there are other unexpected ways to save for retirement, such as health savings account, or HSAs.

“I don’t think they were designed to be a retirement account,” said Angie Chen, assistant director of savings research at the Center for Retirement Research. “I’m just as puzzled in terms of why HSA has become another option for a retirement account.”

First introduced in 2003, HSAs were originally created to incentivize saving for medical expenses for those in a high deductible plan.

“The idea is that you can put money pre-tax into the HSA and set that aside so in the event that you need to spend money on your health care that would not be covered by your insurance plan,” Chen said.

While money in an HSA can also be used for investment, most HSA holders use the funds for its original purpose of covering medical expenses. In 2019, just 7% of health saving accounts had investments other than cash.

“I think folks miss the investment component and that is a major deal in being able to provide for healthcare expenses,” Odyssey Capital Advisors chief investment officer Jason Snipe said.

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How IRAs Work And Why They Are More Popular Than 401(k)s

[Beatricegove]

I just switched up my Roth IRA to 50% SCHD, 25% SCHX, 25% SCHG, and my Roth 401k is 70% vanguard S&P 500 index, 20% vanguard growth index, and 10% vanguard international index. Seeking best possible ways to grow $350k into $1m+ before retirement, I'm 55.

[caseybills]

I'm recently retired and uncertain if my 401(k) and IRA will be enough for a stable future. I've set aside $1 million to help secure my financial goals and align with my risk tolerance. Should I consider investing in stocks or buying a rental property?

[mulattodavid]

Honestly, this concerns me and has left me uneasy. Especially this potential depression, no more a recession. I'm unsure about my $130K account strategy, considering the uncertainty of this whole recession mostly.

[NicholasBall]

Investing in Roth IRA can be a good choice since they are funded with after tax dollars, your contributions can grow tax-free over time. When you withdraw money from your Roth IRA in retirement, you won’t have to pay tax on it, which will help you keep more of your hard-earned money. I retired with 5 million dollars

[NikolasMartine]

"Retirement isn’t an end goal, but a journey best secured by careful and consistent investments."

[rickmcdonaldj]

I've been reconsidering my retirement strategy, questioning if my 401(k) and IRA are enough for a secure future. I’ve also invested $300K in the stock market, but the returns have been inconsistent and modest. I'm looking for an investment approach that better aligns with my risk tolerance and financial objectives.

[ClementRusso]

Choosing a Roth IRA is advantageous as it uses after-tax funds and allows tax-free growth. When I retired, I had $3M million saved, and I won't be taxed on my withdrawals.

[anthonyrussell]

Explanatory video, one that folks really need to watch. I’m 50, retired a while at 45. I have 35% of my capital investments in an IRA, 25% in index funds, and the balance spread across other investment accts, in cumulative of over $1M. I receive income from my rental properties too. Zero debt and all is going accordingly. My financial consultant has been patient and has done a wonderful job for me throughout the years.

[SlParkerlee]

The 401k is good, because retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k. My mom retired with about 4.2 million, but my dad retired with roughly 1.8 million. So it really does.

[treesnmoguls]

Why are IRA contribution limits kept so LOW ($6K/$7K)? They should be made the SAME as 401k limits so that folks without a 401K can be on equal footing!

[letrat]

good job CNBC for taking steps to educate the public on retirement

[kaylawood]

Earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to invest $400k on my stock portfolio. what’s the best way to take advantage of the market?

[barttfisher]

I’m 38 and I have about ($190k) liquid in savings which I plan to put towards becoming a homeowner, but based on the current high prices on real estate, do you suggest I hold from buying and look at stocks instead?

[judynewsom]

I want to diversify my portfolio across different stocks and sectors to minimize risk. I’ve heard of people accruing over $550k during recessions, how do I achieve this?

[joshh]

I love my HSA. I have it on top of my 401K and only keep enough cash to cover my maximum out of pocket expenses, the rest is invested and I've made a ton within a year just investing in same blue chip companies and broad ETFs. Starting now in my 20s I hope that by retirement I'll have enough to cover every type of medical expense including premium in-home care if I ever need it. Start early my friends with every tool you got!

[Riggsnic_co]

We experienced the peak of our era, and now it is gone. Recession is tanking everything including 401K. My retirement equities portfolio of $750K is in the reds. I keep losing because of inflation. This world will fall to the corrupt rulers in the same way that Rome did. I'm sorry if you're thinking about retiring and you're worried that your pension won't be enough to meet the rising cost of living. Horrible foreign policies everywhere, bad regulatory policy, bad fiscal policy, and bad energy policy.

[baklava]

Get both if you can. No reason one can’t have an IRA in addition to their 401k. You don’t have to put in the max if you can’t. Put as much as you can, trust me you will be glad you did.

[KTC]

I'm about to graduate college and go out into the professional world. This information will definitely come in handy!

[ReidCoffman]

When the stock market rebounds, many investors may come to regret not investing in the red today. It's possible that this pricing will never be seen again. If you have a fantastic vision for it, there is always opportunity in the midst of chaos

[FinancialShinanigan]

Always check the expense ratio of the funds your employers offer.