There are certain advantages 401(k) plans have over IRAs. Not only do they have higher contribution limits, but they also commonly come with an employer match.
Another benefit 401(k)s have over IRAs is that they're funded automatically through payroll deductions. That may not seem like a major benefit at first. But it's huge.
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When your 401(k) gets funded automatically each month, it keeps you on track with your savings goal. IRAs aren't funded through payroll deductions, though, because they aren't tied to your employer.
Here's the problem with that. Let's say you're funding your IRA by transferring money into that account at the end of each month. If you have a month when your expenses come in higher than expected, you may not have any funds left to contribute toward retirement savings.
If that happens every so often, it may not be such a problem. If it happens every second or third month, it could stunt your savings' growth.
That's why it's a good idea to automate IRA contributions. Most IRAs let you set up an automatic transfer on a schedule that works for you.
One good option is to arrange for those automatic contributions to happen the day after you get paid. That way, the money will leave your bank account right away, and you'll basically eliminate the option to spend it.
Remember, a lot of people with 401(k)s do well with those accounts because their contributions are deducted from their paychecks off the bat. In other words, they don't even miss the money.
It's best to set up your IRA to do the same. That way, you get the peace of mind that your account is being funded on a consistent basis.
