401(k) vs IRA
Should I use a 401(k) or an IRA?
A 401(k) is set up through your employer with much higher limits. An IRA is opened on your own with more investment choices.
Key takeaways
- 401(k) limits are several times higher than an IRA's
- Match = free money, take it first
- IRAs usually have more investment options
- You can use both
When to choose 401(k)
Your employer offers a match — always capture that first.
When to choose IRA
You've captured the match and want broader, lower-cost investment choices.
TL;DR
Use the 401(k) for the employer match first, then decide where the next dollar goes.
Key differences
- 401(k): employer-sponsored, much higher annual contribution limit, plan picks the menu of funds.
- IRA: you open it yourself, lower contribution limit, almost any investment.
When each wins
- 401(k) wins when there's an employer match — that's an instant return you can't get anywhere else.
- IRA wins when you want broader fund choices, lower fees, or already maxed the match.
Watch-outs
High-fee 401(k) plans erode returns. Above the match, an IRA is often cheaper.
Frequently asked
›Should I do both?
Yes — get the match in the 401(k), then fill the IRA, then come back to the 401(k).
Related
Roth uses after-tax money and grows tax-free. Traditional may give you a tax break today but you pay tax on withdrawals.
Solo 401(k) usually lets you put away more on the same income, and supports Roth and loans. SEP is simpler to open and run.
Wealthypedia is educational. This isn't financial, tax, legal, or investment advice. Last reviewed —.