Decision Center

401(k) vs IRA

Employer plan vs individual retirement account.

A 401(k) is sponsored by your employer, has far higher annual limits and often an employer match. An IRA is opened by you, with lower limits but a much wider investment menu and full control.

Option A

401(k)

Workplace plan with payroll deferrals and potential employer match.

Pros

Highest contribution limits
Employer match is an instant return
Automatic payroll deferral

Cons

Limited fund menu
Plan administration fees
Rules set by the employer

Best for

Anyone with a match availableHigh saversHands-off investors

Typical user: W-2 employee with an employer-sponsored plan.

Open 401(k)

Option B

IRA

Individual account (Roth or Traditional) you open at any custodian.

Pros

Any investment the custodian offers
Roth withdrawals can be tax-free in retirement
Portable between jobs

Cons

Much lower annual limit
Income limits on Roth contributions
No employer match

Best for

Self-employed saversAnyone maxing the match alreadyInvestors wanting low-cost funds

Typical user: Saver who wants control over investments and tax treatment.

Open IRA

The verdict

Capture the full employer match in the 401(k) first, then fund an IRA, then return to the 401(k) up to the annual limit.

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