IRA vs. 401(k): What's the difference?

The most common types of retirement investment accounts are a 401(k) and IRA.

If you’re eligible, it’s possible you could contribute to a 401(k) and an IRA, so it may be helpful to know how they compare from a contribution, withdrawal and tax perspective. Here’s a look at their similarities and differences.

IRA and 401(k) definitions

A 401(k) is a type of employer-sponsored retirement plan. Depending on the industry you work in, your workplace retirement plan may be called a 403(b) or 457. Additionally, depending on your workplace plan, you may also have access to a Roth 401(k).

An IRA is an individual retirement account that you open with a financial institution, either a bank or a brokerage firm. Types of IRAs available include traditional IRAs, Roth IRAs and even options for self-employed individuals and small business owners.

IRA vs. 401(k) contributions and investment selections

There’s a difference in how you fund 401(k)s and IRAs, as well as the investment options available to you.

	401(k)	Roth 401(k)	Traditional IRA	Roth IRA
Eligibility	Most employers have certain qualifications you must meet to participate in their 401(k) savings plan, such as being at least 21 and employed with the organization for at least one year.	Dependent on availability within your employer plan.	Anyone with earned income is eligible to open and contribute to a traditional IRA.	Roth IRA eligibility is based on income level. Read more about Roth IRAs.
Contribution details	401(k) contributions are directly withdrawn from your paycheck with pre-tax dollars.	Roth 401(k)s are funded with after-tax dollars.	Traditional IRAs can be funded with after-tax dollars or as tax-deductible contributions.	Roth IRAs are funded with after-tax dollars.
Annual contribution limit	The annual combined 401(k) limit for 2025 is $23,500. If you’re age 50-59 or 64 and older, you can contribute an additional $7,500. If you’re age 60-63, you can contribute an additional $11,250.	The annual combined 401(k) limit for 2025 is $23,500. If you’re age 50-59 or 64 and older, you can contribute an additional $7,500. If you’re age 60-63, you can contribute an additional $11,250.	The combined annual limit for traditional and Roth IRAs in the 2024 and 2025 tax years is $7,000. If you’re age 50 or older you can contribute an additional $1,000.	The combined annual limit for traditional and Roth IRAs in the 2025 tax year is $7,000. If you’re age 50 or older you can contribute an additional $1,000.
Employer match	Yes; varies by employer, with average match of 4.6% of income.¹	Yes; varies by employer. Your employer will allocate any match contributions into a pre-tax account.	None.	None.
Investment selection	Generally chosen by your employer; more than one type of portfolio may be offered.	Generally chosen by your employer; more than one type of portfolio may be offered.	You can choose the investments for your portfolio.	You can choose the investments for your portfolio.

Eligibility

401(k)

Most employers have certain qualifications you must meet to participate in their 401(k) savings plan, such as being at least 21 and employed with the organization for at least one year.

Roth 401(k)

Dependent on availability within your employer plan.

Traditional IRA

Anyone with earned income is eligible to open and contribute to a traditional IRA.

Roth IRA

Roth IRA eligibility is based on income level. Read more about Roth IRAs.

Contribution details

401(k)

401(k) contributions are directly withdrawn from your paycheck with pre-tax dollars.

Roth 401(k)

Roth 401(k)s are funded with after-tax dollars.

Traditional IRA

Traditional IRAs can be funded with after-tax dollars or as tax-deductible contributions.

Roth IRA

Roth IRAs are funded with after-tax dollars.

Annual contribution limit

401(k)

The annual combined 401(k) limit for 2025 is $23,500. If you’re age 50-59 or 64 and older, you can contribute an additional $7,500. If you’re age 60-63, you can contribute an additional $11,250.

Roth 401(k)

The annual combined 401(k) limit for 2025 is $23,500. If you’re age 50-59 or 64 and older, you can contribute an additional $7,500. If you’re age 60-63, you can contribute an additional $11,250.

Traditional IRA

The combined annual limit for traditional and Roth IRAs in the 2024 and 2025 tax years is $7,000. If you’re age 50 or older you can contribute an additional $1,000.

Roth IRA

The combined annual limit for traditional and Roth IRAs in the 2025 tax year is $7,000. If you’re age 50 or older you can contribute an additional $1,000.

Employer match

401(k)

Yes; varies by employer, with average match of 4.6% of income.¹

Roth 401(k)

Yes; varies by employer. Your employer will allocate any match contributions into a pre-tax account.

Traditional IRA

None.

Roth IRA

None.

Investment selection

401(k)

Generally chosen by your employer; more than one type of portfolio may be offered.

Roth 401(k)

Generally chosen by your employer; more than one type of portfolio may be offered.

Traditional IRA

You can choose the investments for your portfolio.

Roth IRA

You can choose the investments for your portfolio.

IRA vs. 401(k) taxes and withdrawals

Traditional 401(k)s and traditional IRAs have more in common when it comes to tax benefits, distribution and withdrawal requirements. They’re considered tax-advantaged investment accounts, since contributions are either pre-tax or tax-deductible.

Roth IRAs and Roth 401(k)s are considered tax-free investment accounts, since distributions and qualified withdrawals aren’t taxed.

	Traditional 401(k) + traditional IRA	Roth 401(k) + Roth IRA
Tax implications	Pre-tax or tax-deductible contributions. Contributions grow tax-deferred, and withdrawals are taxed as ordinary income.	Non-deductible contributions and tax-deferred growth. Tax-free withdrawals on contributions; tax-free withdrawals on earnings if you’ve owned the account for five years and are older than 59 ½.
Tax penalties for early withdrawal	10% penalty tax if money is withdrawn before age 59 ½, but certain exceptions may apply to your situation. Read about 401(k) and IRA withdrawal rules.	Withdrawals of earnings before age 59 ½ are subject to a 10% penalty tax. There are situations in which you can make early withdrawals without penalty. Read about 401(k) and IRA withdrawal rules.
Required minimum distributions (RMDs)	You must begin taking required minimum distributions (RMDs) from traditional IRAs and traditional 401(k)s at age 73. You’re required to withdraw a certain amount each year, calculated based on your age and the value of your accounts. One exception—you may delay taking RMDs from your employer retirement plan if you’re still working and do not own more than 5% of the business you work for.	No minimum distributions required during the Roth account owner or spouse’s life. Read about distribution requirements for an inherited IRA.

Tax implications

Traditional 401(k) + traditional IRA

Pre-tax or tax-deductible contributions. Contributions grow tax-deferred, and withdrawals are taxed as ordinary income.

Roth 401(k) + Roth IRA

Non-deductible contributions and tax-deferred growth. Tax-free withdrawals on contributions; tax-free withdrawals on earnings if you’ve owned the account for five years and are older than 59 ½.

Tax penalties for early withdrawal

Traditional 401(k) + traditional IRA

10% penalty tax if money is withdrawn before age 59 ½, but certain exceptions may apply to your situation. Read about 401(k) and IRA withdrawal rules.

Roth 401(k) + Roth IRA

Withdrawals of earnings before age 59 ½ are subject to a 10% penalty tax. There are situations in which you can make early withdrawals without penalty. Read about 401(k) and IRA withdrawal rules.

Required minimum distributions (RMDs)

Traditional 401(k) + traditional IRA

You must begin taking required minimum distributions (RMDs) from traditional IRAs and traditional 401(k)s at age 73. You’re required to withdraw a certain amount each year, calculated based on your age and the value of your accounts. One exception—you may delay taking RMDs from your employer retirement plan if you’re still working and do not own more than 5% of the business you work for.

Roth 401(k) + Roth IRA

No minimum distributions required during the Roth account owner or spouse’s life. Read about distribution requirements for an inherited IRA.

Is an IRA or 401(k) better suited for your needs?

Consider a 401(k) if your employer offers a company match.
If flexibility is important, a traditional IRA or Roth IRA allow you to choose your investments. However, you should factor sales charges, maintenance and transaction fees, and expense ratios into your decision.
You can open a Roth IRA or traditional IRA for a non-working spouse.
If your priority is to lower your taxable income, a traditional 401(k) or traditional IRA can help with that. Whatever you contribute, your taxable income may be lowered by that amount. However, IRA contribution limits are significantly lower than 401(k)s.
If access to funds is a priority, consider a Roth IRA, which allows you to withdraw your contributions at any time. If you withdraw earnings, however, they may be subject to taxes and penalties.