December 1, 2020
In layman's terms, a 401(k) is a feature of a company allowing their employees to contribute a portion of their wages into accounts. Whereas, an individual retirement acocunt or IRA is a tax-advantaged investing tool for individuals to invest their money for retirement or the future.
There are different types of 401Ks and IRAs. Both have the traditional approach which are tax-deductible*. The other 401K types are safe harbor and SIMPLE. The other IRA types are Roth, SEP, and SIMPLE. More information about 401K can be found on the Internal Revenue Service site and more information about IRA can be found on Investopedia.
My investment story is kind of funny. I opened up my first Roth IRA in 2017 with Vanguard but I was strapped for money at the time. I believe my brain was thinking that if I had opened the account, I would set money aside for it. Which never really happened. I only had $250 in it and decided to close it out earlier this year because it was against my religion since I had no control over the investment portfolio.
After much research about 401(k), IRAs, and stocks, I was able to come up with the investment strategy below.
Traditional 401(k): I elected for this plan because I don't want to wait forever to use my money. I rather have that tax-deductible from my income now because I truly don't know when my end will be. I only contribute the percentage that my company would match and that is taken out of my paychecks.
Roth IRA: I choose to open a Roth IRA again, but this time with Saturna Capital because I know that my investment is halal** or that it's a clean investment. I have a monhtly withdrawal on it to force myself to invest in my future and not spend it on useless things.
Stocks: I used to invest here and there in the stock market and the cryptocurrency world. Not anymore because it caused too much worry and anxiety. It was not worth my time and efforts. Therefore, I cashed out and stopped playing to focus on other things like volunteering and working on more meaningful projects.
*Tax-deductible is the amount that is decreased on your taxable income and you don't have to pay taxes on the money now but you will need to pay taxes on it in the future when you reach the age to withdraw the money.
**Halal is an Arabic word that means "permissible or lawful" based on the Islamic faith.