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Retirement

401(k) vs. IRA? Use both if you can

How much you save now may determine how comfortable you are in retirement. Combining 401(k)s and IRAs can make it even comfier.
4 minute read

If your employer offers a retirement plan, like a 401(k) or 403(b), and will match a percentage of your contributions, you should definitely take advantage of it—after all, it's free money for you. Plus you'll have a tax-deferred account that makes saving a cinch through automatic payroll deduction.

If your employer doesn't offer a plan, then an IRA can be a good start to your retirement savings and another opportunity for your earnings to grow tax-free.

Facts & figures you need to know

  401(k) IRA
Who can participate Anyone who works for an employer that offers a plan Effective for 2020 contributions and later, anyone with earned income can open and contribute to a traditional or Roth IRA. For 2019 contributions and earlier, you could not make contributions to a traditional IRA after age 70½.
How much you can invest

If you're under age 50, your annual contribution limit is $22,500 for 2023 and $23,000 for 2024.

If you're age 50 or older, your annual contribution limit is $30,000 for 2023 and $30,500 for 2024.

If you're under age 50, your annual contribution limit is $6,500 for 2023 and $7,000 for 2024.

If you're age 50 or older, your annual contribution limit is $7,500 for 2023 and $8,000 for 2024.

Get details on IRA contribution limits & deadlines
What you can invest in Most employers limit you to a preselected list of investment choices. You can invest in a wide variety of mutual funds, exchange-traded funds (ETFs), and individual stocks and bonds.
Pick investments for your IRA

 
How to get started Your employer may automatically enroll you in the plan and offer you an easy way to contribute through automatic payroll deduction. You can open an IRA on your own through almost any bank, brokerage company, insurance firm, or investment company.
Learn how to open your IRA

Eligible for both? Go for it

The good news is that you don't necessarily have to think IRA versus 401(k). You can save with both as long as you're qualified and heed contribution and income limits.

Learn how an IRA and a 401(k) can work together

Learn how an IRA and a 401(k) can work together

If you're eligible to invest in a 401(k) and an IRA, here's an efficient way to do it:

  1. Enroll in your company's 401(k) and contribute at least the amount that your employer will match.
  2. Contribute the maximum allowed to your IRA.
  3. Go back to your 401(k) plan and contribute beyond the match to the annual maximum allowed, if possible.

We recommend following these steps because an IRA offers more flexibility and choice, giving you a greater chance to diversify your assets and reduce your investment risk.

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All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.

Diversification does not ensure a profit or protect against a loss.

When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.