Explore the key differences between 401(k) plans and IRAs, two common ways to save for retirement.

Anyone can open an IRA, but 401(k) plans are accessible only through an employer. These two retirement vehicles also have different contribution limits per year, with 401(k) plans allowing you to contribute significantly more than an IRA.

The two main types of accounts are 401(k) plans and individual retirement accounts (IRAs)—but what do those mean, exactly? There are differences between the two types, as well as the subtypes beneath them.

Traditional IRAs allow tax-deductible contributions, but withdrawals in retirement are taxed as income. Roth IRAs use after-tax dollars, offering tax-free withdrawals later, but income limits may restrict eligibility. Choosing between the two depends on your financial situation today and your future tax outlook.

In 2024, individuals could contribute up to $7K across all their IRAs. People aged 50 and older could contribute up to $8K. For 2025, the IRS kept the same contribution limits.

Those types are traditional, Roth, SEP, and SIMPLE. While all IRAs can help you save for retirement, each type has its own tax advantages and eligibility requirements, such as employment type or income level.

However, some argue that you could end up paying less money to invest in a 401(k) plan than you would to invest in an IRA. This article offers a list of pros and cons regarding rolling a 401(k) into an IRA.

A normal 401(k) defers tax payments to later, while a Roth requires no tax payments at withdrawal time. Financial experts often recommend investing in a Roth 401(k) plan or Roth IRA when someone first starts their career to lock in a relatively low tax rate.

Contributing to both an IRA and a 401(k) lets you increase your retirement savings by about 30% every year. However, you’ll also spend more time actively investing that money and pay more in fees.

If you or your spouse contributes to a 401(k), you likely won’t be able to deduct your traditional IRA contributions from your taxes. On the flip side, if you don’t contribute to an employer-sponsored retirement account, you’re probably eligible for that tax deduction.

With pension plans, a company contributes to an investment fund from which it distributes regular payments to a retired worker until their death. A 401(k) gives the worker control over contributions in a tax-advantaged account.

Roth IRAs and 529 plans both offer tax advantages, but they serve different goals. 529s are state-run accounts meant for education, offering tax-free growth and withdrawals for qualified expenses. Roth IRAs are built for retirement, but can also be tapped for education, with more investment flexibility and fewer contribution limits.

With a 401(k) plans you can invest more money now and let it grow with compound interest. Americans have more than $7T invested in these types of accounts.

An IRA lets individuals at most income levels invest either pre- or post-tax money for retirement. IRAs are often good solutions for people who don’t have the option to invest in a 401(k) plan—or for those who want to put even more money aside for retirement.

You can typically deduct traditional IRA contributions from your taxes. To invest in a Roth IRA, on the other hand, you must contribute money that has already been taxed.

The Employee Retirement Income Security Act of 1974 lumped both defined-contribution plans like 401(k) plans, and defined benefit plans (like what is colloquially known as a pension) under the term “pension” in order to protect workers and make retirement plan enforcement simpler. Learn more about the ERISA here.

Should you get a 401(k)? To make sense of this obscure piece of tax code, here’s a beginner’s guide to one of the more common forms of retirement savings in the US. Learn the history of the 401(k), how to sign up for one, the different types, and more in this well-organized and concise explainer from Investopedia.

Do you know more than a third of working adults aren't offered a 401(k) through their jobs? If you're part of that group, you still have options for retirement savings, including IRAs, taxable investment accounts, and more.

In most cases, only working individuals can open and contribute to an IRA. But the IRS has a special exception for married couples: the spousal IRA. It lets the working spouse open and contribute to an IRA on behalf of their nonworking spouse.

The median, however, is much lower at around $27K. The average balance of a 401(k) in the US differs across different age groups and income levels.

Broadly speaking, an employer 401(k) match means that if you invest money into your 401(k), your employer will put cash in, too. But these programs are often fairly nuanced.

A Roth IRA might make the most sense for someone confident that they will have a higher income in retirement than they do now. For 2025, those allowed to contribute to a Roth IRA must have a modified adjusted gross income (MAGI) of less than $150K.

Ted Benna, a rural benefits consultant, proposed a reinterpretation of a small tweak to the Internal Revenue Code in 1980. This led to a fundamental transformation of how American workers plan for retirement.

Part of the problem is the high, often hidden fees associated with the accounts and a lack of access. Plus, analysts say the annual cost in tax revenue to the government is more than $100B.

Parents can open a custodial Roth IRA when their child starts to earn income (think: summer job), which can help them start saving early. For example, 529 accounts help parents save for college, while UTMA/UGMA accounts function like trusts.

Investors put after-tax dollars into these education-earmarked accounts, and like a 401(k) or IRA, they invest them into stocks, bonds, or funds. When it comes time to withdraw, investors do not pay any taxes on distributions. However, the money must be used for approved expenses like college tuition, textbooks, and trade schools.

Americans ages 28 to 44 save about 13.5% of their pretax income on average, which is close to the recommended retirement savings rate of 15%.

The Roth IRA is one of the most popular retirement accounts in the US. Nearly a quarter of Americans contributed to a Roth IRA in 2023. But this type of financial account hasn’t been around for that long.

Normally, you face a large penalty if you take money out of your IRA before age 59½. Now the IRS is letting individuals withdraw up to $1K without facing the 10% fee (with the exception of Roth IRAs) for emergencies.

This ensures both people can build financial security for the future. While it's not a separate account type, this provision requires couples to file a joint tax return to qualify, helping nonearning spouses save for retirement independently.

An inherited IRA is any kind of IRA or 401K plan you inherited from someone after they’ve died. Since there are different tax advantages for each type of retirement account, the rules you have to follow widely differ based on the account, your relationship to the deceased, and how you want to use the money. Here are the seven things you must know to navigate an inherited IRA.

Every investment plan has an expense ratio—a percentage of the total assets that goes to the investment manager in the form of fees. Because 401(k) plans are so common, and many of their participants are not savvy investors, the relative expense ratio for them has often excessively increased.

A rollover IRA is a type of investment account that lets you move the money from an old retirement account into an IRA after you stop working for your employer. This move lets you keep your funds in a tax-deferred account without being hit with taxes, fees, or penalties. This article explains how you can roll over your money and highlights any restrictions to keep in mind. Learn more here.

How did 401(k) plans get their name? Check out the 401(k) section (and subsection) of the US tax code made famous by benefits consultant Ted Benna. Tap into your inner accountant and check out the now-famous portion of the dense, 10,000-section tome that is the Internal Revenue Code.

However, there are a few exceptions to this rule. In the case of adoption, death, terminal illness, education, homebuying, and more, you can access your funds without a strike against you. A chart outlines the different exceptions to this rule, plus the accounts to which they apply.

There’s a lot of advice about handling a 401(k), but it can be mired in disclaimers and legalese. Come prepared to your financial advisor or accountant by watching this informative take on how to properly use a 401(k), from consolidating plans to some of the most common errors.

Backdoor IRAs work by investing money into a traditional IRA, and then converting that traditional IRA to a Roth IRA.

The plans can be used to pay for any qualifying education expenses from kindergarten to college, including tuition, fees, room and board, and even computers. Anyone can set up as many 529 plans as they want for relatives, friends, or themselves.

Through a "super catch-up," they can boost their retirement contributions as they prepare to stop working. But super catch-ups aren't always right for everyone.

The Roth IRA was established by Senator William Roth in 1997 as part of the Taxpayer Relief Act. Roth IRAs differ from traditional IRAs in that they allow individuals to invest after-tax income for retirement rather than pre-tax income.

Key Secure Act provisions included raising the age at which mandatory distributions take effect (to increase saving), allowing larger catch-up contributions for older individuals, and allowing employers to directly match contributions in a Roth 401(k).

Pension plans are a form of guaranteed retirement plan for long-time workers, and they were a major part of industries in the mid-20th century. With the rise of the 401(k) and similar tax-advantaged, defined-contribution accounts, these so-called defined-benefit plans have declined in use by employers. Compare US adoption of both kinds in this table.

The IRS imposes a 10% penalty on non-qualified withdrawals from 529 college savings plans, which hold funds for education-related expenses. However, there are exceptions to the rule, including if the beneficiary dies or becomes disabled. There's also an exception for beneficiaries that receive tax-free scholarships or attend military academies.

If you're close to retirement, volatility in the stock market can feel scary. This guide for 401(k) savers has suggestions on what to do with your retirement accounts during uncertain times, based on how close you are to the age you'd like to retire.

In order to ensure that retirees received all the retirement funds a company or other institution may have promised them, pensions were often limited to investing in run-of-the-mill assets like government securities, investment-grade bonds, and blue-chip stocks. But as market conditions have evolved, pensions are increasingly being invested in a wider range of assets, including alternative investments.

For National 529 Day, celebrated on May 29, an expert explained the basics of 529 accounts. Outside of forced education savings, advantages include flexibility around beneficiaries (they can be changed easily), how unused funds can be rolled into a Roth IRA, and state-specific tax exemptions.