401k vs IRA: Which Retirement Account Is Right for You?
Compare 401k and IRA retirement accounts including contribution limits, employer matching, tax treatment, investment options, and withdrawal rules.
401k vs IRA: The Big Picture
401k plans and IRAs are the two primary vehicles for retirement savings in the United States. A 401k is an employer-sponsored retirement plan that allows employees to contribute pre-tax or Roth dollars directly from their paycheck. An IRA is an individual retirement account that you open independently through a brokerage, bank, or robo-advisor. Both offer significant tax advantages, but they differ in contribution limits, investment flexibility, fees, and rules.
The best choice is not either-or. Most retirement planning experts recommend contributing to a 401k at least enough to capture the full employer match, then maxing out an IRA, then returning to the 401k for additional contributions. This strategy maximizes both the employer match and investment flexibility.
Contribution Limits
For 2025, the 401k employee contribution limit is $23,500, with an additional $7,500 catch-up contribution for those aged 50 and older. The IRA contribution limit is $7,000, with a $1,000 catch-up for those 50 and older. Combined, a married couple could contribute up to $61,000 per year across these accounts, not including employer matches.
Swipe sideways to compare columns.
| Feature | 401k | IRA |
|---|---|---|
| Employee contribution limit | $23,500 | $7,000 |
| Catch-up contribution (50+) | +$7,500 | +$1,000 |
| Employer match possible | Yes (up to ~5% of salary) | No |
| Total limit with employer + employee | $70,000 (under 50) | $7,000 |
| Income limit for Roth | No income limit | $165,000 (single), $246,000 (married) |
| Tax deduction limit for traditional | No income limit | $89,000 (single), $143,000 (married) |
Tax Treatment: Traditional vs Roth
Both 401k and IRA plans offer traditional (pre-tax) and Roth (after-tax) options. With traditional contributions, you get a tax deduction now and pay income tax on withdrawals in retirement. With Roth contributions, you pay tax now and withdraw tax-free in retirement. The choice depends on whether you expect to be in a higher or lower tax bracket in retirement. Traditional accounts are generally better if you expect your income to be lower in retirement; Roth accounts are better if you expect higher income or want tax-free withdrawals.
Investment Options and Fees
IRAs typically offer vastly more investment choices than 401k plans. With an IRA at a major brokerage, you can buy individual stocks, bonds, ETFs, mutual funds, REITs, and more. A 401k plan is limited to the menu of funds selected by your employer, which typically includes 10-30 options. However, 401k plans often have access to institutional share classes of mutual funds with lower expense ratios than retail funds available in IRAs. IRA fees are generally lower than 401k administrative fees, especially with the zero-commission brokerages now common.
Can I have both a 401k and an IRA?
Yes. You can contribute to both a 401k through your employer and an IRA independently. The contribution limits are separate and do not affect each other. The only interaction is that if your income exceeds certain thresholds, your traditional IRA contribution may not be tax-deductible if you have a 401k at work.
Should I roll over my old 401k to an IRA when I change jobs?
Generally yes, unless you have very low-cost institutional funds in the 401k. Rolling to an IRA gives you more investment choices, lower fees, and easier management. Avoid cashing out the 401k, which triggers taxes and a 10% early withdrawal penalty.