401(k) accounts have now become the most popular way for people to save for their retirement. As of 2012, about 52 million workers in the United States had a 401(k) retirement plan, according to the Investment Company Institute. Saving for retirement is extremely important because if you do not, you will not have a stable about of money when it comes time to retire. Although 401(k) accounts are the most popular form of saving for retirement, it is not the only way. People also have the option of getting an IRA, or an individual retirement account. Before making the decision between a 401(k) account with your employer, or going about saving money in an IRA, you should know about the pros and cons of a 401(k) account. After being educated about it, you can make an informed decision on whether a 401(k) account is right for you.

One of the pros of having a 401(k) account is that you will never have to worry about the safety of your money. When people have a 401(k) through their workplace, it is protected by a federal law called the Employee Retirement Income Security Act of 1974. This act ensures that you will get: a claims and appeals process to make sure your get benefits, knowledge of important facts about your plan’s features and funding, and a payment of certain benefits if you lose your job or if a plan is terminated. So, if your company ever goes under, or you move jobs, you will have access to your funds in order to move them to a different account.

 Another pro of having a 401(k) account is the fact that you will receive great financial advice. Once you enroll in a plan with your employer, you will be able to invest that money in order to create more of a profit. There are a lot of plan providers, and each one has different resources that will give you the best advice of where to put your money. They will show you the different risk factors of your unique situation. Your 401(k) provider may offer a free consultation with a financial advisor, so take advantage of this option in order to get good advice about your investment options.

One of the cons that comes along with having a 401(k) account is that there are early withdrawal fees. If you take out your money before the age of 59 1/2, you will have to pay a fee, as well as pay a 10% penalty to the IRS. So, if you desperately need your money, you will have to pay to access it.

In addition to the early withdrawal fees, there are also limited investment options, which is another con to having a 401(k) account. Most likely, an IRA will have more investment options than a 401(k) account. There are basic investment options that come along with a 401(k), and they are stocks, bonds, and cash. If you want more options to invest your money into, a 401(k) will not provide these options.

Doing your research about the different types of retirement accounts is essential to understanding what the advantages and disadvantages are. By comparing the accounts based on their pros and cons, you will be able to decide which account will be the best for your situation, and for the way you want to prepare for retirement.