Money guide · Retirement accounts and planning
401(k) vs. IRA: compare account features
Compare workplace retirement plans and IRAs by access, employer contributions, investment menus, fees, and tax rules.
How it works
A workplace plan may provide matching contributions and a defined investment menu. An IRA generally lets you choose a provider and its available investments. Traditional and Roth tax treatment are separate choices where available. Annual limits and eligibility differ by account and tax year, so verify them rather than applying an IRA limit to a workplace plan.
A worked example
Suppose an employer matches employee contributions up to an illustrated $150 monthly, subject to its actual formula. Contributing enough to qualify could add $1,800 of employer contributions annually before vesting considerations. An IRA has no corresponding employer match in this ordinary scenario, but may offer different fees or investments. Compare the complete arrangement rather than the wrapper alone.
What to compare
Read the plan’s match formula, vesting, fees, investments, and distribution rules. For an IRA, compare provider costs and the same investment exposure where possible. Consider how contributions interact with deductions and income eligibility. Having both types can be possible, but their tax treatment and limits must be evaluated under the applicable rules.
A common mistake to avoid
Opening an account does not necessarily mean the cash is invested in the intended portfolio. Review your holdings after contributions arrive. Do not assume all workplace plans are either expensive or superior; plan-specific terms matter. The account choice and asset allocation should be evaluated as related but distinct decisions.
Can I have a 401(k) and an IRA?
Yes, having both is possible. Contribution eligibility and any IRA deduction depend on the relevant rules and your circumstances.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or adjust a retirement goal for inflation using your own assumptions.