A 401(k) and an individual retirement account (IRA) can both serve as smart options when planning for retirement. However, each account type comes with its own set of rules and requirements. If you\u2019re unsure of which account is right for you, or you\u2019re interested in opening both types of accounts, we\u2019re here to break down the differences between the two so you can make an informed decision.<\/p>\n\n\n\n
Many employers offer their employees a 401(k) employer-sponsored retirement plan. Individual business owners without employees can also open a 401(k) called a Solo 401(k). A percentage of an employee\u2019s pre-tax income is placed into their 401(k) account automatically through payroll deduction, reducing their gross total income.<\/p>\n\n\n\n
Participants can also make a larger contribution to a 401(k) account than an IRA account. The contribution limit in 2025 is $23,500 or $31,000 if you\u2019re age 50 or older.<\/p>\n\n\n\n
The funds in this account are invested, often in funds like mutual funds, and can grow over time; these earnings are also tax deferred. The participant won\u2019t pay taxes on the account until the time of withdrawal. Account distributions will be taxed based on the recipient\u2019s income tax rate at the time of distribution.<\/p>\n\n\n\n
Some employers offer their employees the option of a Roth 401(k), which is like the traditional 401(k) with the exception that contributions are post tax. This means that when the participant makes qualified withdrawals of their Roth funds, they will be tax-free.<\/p>\n\n\n\n
The benefits of enrolling in a 401(k) plan include but are not limited to:<\/strong><\/p>\n\n\n\n A traditional IRA is another type of tax-deferred retirement account. An individual sets up this account through a bank or a brokerage.<\/p>\n\n\n\n IRA contribution limits are lower than that of a 401(k): $6,500 for those under 50 and $7,500 for those age 50 or over. IRA contribution limits may be further limited based on your income.<\/p>\n\n\n\n If you choose to enroll in a Roth IRA, you will make contributions using post-tax dollars. A Roth IRA will not provide a yearly tax deduction; however, you will be able to make qualified withdrawals funds at the time of retirement tax-free.<\/p>\n\n\n\n Benefits of enrolling in an IRA include but are not limited to:<\/strong><\/p>\n\n\n\n The good news is that both 401(k) accounts and IRAs allow you to invest your money in various funds. Each account type lets you choose between the traditional option using pre-tax dollars and a Roth account that invests in post-tax dollars.<\/p>\n\n\n\n Participants are also permitted to contribute funds to both accounts if they meet eligibility requirements:<\/p>\n\n\n\n Yes, you can open an IRA on your own while also enrolled in an employer-sponsored 401(k) plan. Because a 401(k) plan has higher contribution limits, as well as the option for employee matching, you may save more money for retirement by having both accounts. Plus, you can roll over your 401(k) into your IRA if needed.<\/p>\n\n\n\n Do you have more questions about IRAs or our 401(k) options? Reach out to the retirement sales consultants at ePlan Services today for more information.<\/p>\n\n\n\n\n\n
What is an IRA account?<\/h2>\n\n\n\n
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How are 401(k)s and IRAs Similar?<\/h2>\n\n\n\n
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Can I have both?<\/h2>\n\n\n\n