IRA vs. 401(k): Benefits and differences (2024)

FAQs

IRA vs. 401(k): Benefits and differences? ›

401(k) contributions are directly withdrawn from your paycheck with pre-tax dollars. Traditional IRAs can be funded with after-tax dollars or as tax-deductible contributions. Roth IRAs are funded with after-tax dollars. The annual limit for 2024 is $23,000.

The main difference between 401(k)s and IRAs is that 401(k)s are offered through employers, whereas IRAs are opened by individuals through a broker or a bank. IRAs typically offer more investment options, but 401(k)s allow higher annual contributions.

Traditional IRAs offer the key advantage of tax-deferred growth, meaning you won't pay taxes on your untaxed earning or contributions until you're required to start taking minimum distributions at age 73. With traditional IRAs, you're investing more upfront than you would with a typical brokerage account.

What is the biggest difference in who controls the 401(k) and IRA retirement plans? A 401(k) is controlled and monitored by an employer, and an IRA is controlled by the investing individual.

The key difference between Roth and traditional individual retirement accounts (IRAs) lies in the timing of their tax advantages. With traditional IRAs, you deduct contributions now and pay taxes on withdrawals later; Roth IRA contributions are made with money that's been taxed, so you get tax-free withdrawals later.

A Fidelity IRA can help you: Supplement your current savings in your employer-sponsored retirement plan. Gain access to a potentially wider range of investment choices than your employer-sponsored plan. Take advantage of potential tax-deferred or tax-free growth.

A 401(k) is a great retirement savings account, and you should contribute enough to get your full employer match. A 401(k) has limited investment options, and distributions count in determining if Social Security is taxable. You may not be able to take the money out of a 401(k) right away if you retire early.

Traditional individual retirement accounts, or IRAs, are tax-deferred, meaning that you don't have to pay tax on any interest or other gains the account earns until you withdrawal the money.

Is IRA better than 401K for retirement? ›

Individuals can save for retirement through 401(k) plans and individual retirement accounts (IRAs). A 401(k) is an employer-sponsored retirement plan. An IRA is an individual retirement account that individuals open through a bank or a brokerage firm.

403(b) plans

A 403(b) plan is much the same as a 401(k) plan, but it's offered by public schools, charities and some churches, among others. The employee contributes pre-tax money to the plan, so contributions are not considered taxable income, and these funds can grow tax-free until retirement.

Yes, you can have both accounts and many people do. The traditional individual retirement account (IRA) and 401(k) provide the benefit of tax-deferred savings for retirement. Depending on your tax situation, you may also be able to receive a tax deduction for the amount you contribute to a 401(k) and IRA each tax year.

An individual retirement account (IRA) is a tax-advantaged investment account that helps you save for retirement. The IRS sets maximum contribution limits for IRA accounts each year. The money invested in an IRA can grow either tax-free or tax-deferred, depending on the type of IRA.

If you expect tax rates in the future will rise, either because your wealth and income will be higher when you retire or a change in tax law, consider Roth accounts. Also, be sure to talk with your CPA or tax professional about whether a traditional or a Roth IRA—or both—makes sense for you.

It can pay to save in an IRA when you're trying to accumulate enough money for retirement. There are tax benefits, and your money has a chance to grow. Every little bit helps. If your employer doesn't offer a retirement plan—or you're self-employed—an IRA may make sense.

Roth IRAs might seem ideal, but they have disadvantages, including the lack of an immediate tax break and a relatively low maximum contribution.

Individuals can save for retirement through 401(k) plans and individual retirement accounts (IRAs). A 401(k) is an employer-sponsored retirement plan. An IRA is an individual retirement account that individuals open through a bank or a brokerage firm.

An IRA offers a tax-advantaged way to save for retirement. Depending on what type of IRA you use, it can reduce your tax bill either when you make contributions or when you take withdrawals in retirement. Investment gains are tax deferred (for a traditional IRA) or tax free (for a Roth IRA).