"Should I be putting money in my 401(k) or an IRA?" is one of the most common questions people have in the years leading up to retirement. And it makes sense — both accounts let your money grow without being taxed along the way, but they work differently in ways that actually matter.

The short answer is: for most people, these accounts work best together, not as an either-or choice. But the details — contribution limits, investment options, employer matches, and withdrawal rules — are worth understanding before you decide where your next dollar goes.

What They Have in Common

Both a 401(k) and an IRA (Individual Retirement Account) are tax-advantaged accounts, meaning the government gives you a tax break to encourage saving for retirement. The money inside them can be invested in stocks, bonds, or funds, and it grows without being taxed each year — which compounds significantly over time.

Both also come in a traditional version and a Roth version. In a traditional account, you get a tax deduction now and pay taxes when you withdraw the money in retirement. In a Roth account, you pay taxes now and withdrawals in retirement are tax-free.

That's where the similarities largely end.

The 401(k): Bigger Limits, Employer Match, Fewer Choices

A 401(k) is offered through your employer. If you're still working, this is likely your primary retirement savings vehicle — and for good reason.

The contribution limits are much higher. In 2025, you can contribute up to $23,500 to a 401(k). If you're 50 or older, you can add a catch-up contribution of $7,500 on top of that, bringing your total to $31,000 per year. That's a significant amount of tax-sheltered space.

The employer match is the biggest advantage. Many employers match a percentage of what you contribute — a common structure is a 50% match on the first 6% of your salary. If your employer offers any match at all, contributing enough to capture it in full is almost always the right first move. It's part of your compensation, and leaving it on the table is leaving money behind.

The trade-off: limited investment options. Your 401(k) is limited to whatever funds your employer's plan offers. Sometimes those options are excellent. Sometimes they're a short list of expensive mutual funds with high internal fees. You don't get to pick your brokerage or choose individual stocks or ETFs the way you can with an IRA.

Withdrawals have rules. In most cases, you can't touch your 401(k) without a penalty until age 59½. Required minimum distributions (RMDs) — mandatory annual withdrawals set by the IRS — begin at age 73 for traditional 401(k)s. The IRS provides guidance on RMD rules atIRS.gov.

The IRA: More Flexibility, Lower Limits

An IRA is an account you open yourself, independent of your employer. You choose the brokerage — Fidelity, Vanguard, Schwab, and others all offer them — and you control the investment options entirely.

The contribution limits are lower. In 2025, the IRA contribution limit is $7,000. If you're 50 or older, you can contribute $8,000. That's significantly less room than a 401(k), but it's still meaningful, especially if you're making up for lost time in the years before retirement.

Income limits apply to Roth IRAs. You can contribute the full amount to a Roth IRA only if your income is below a certain threshold. In 2025, that phase-out begins at $150,000 for single filers and $236,000 for married couples filing jointly. If you earn above those levels, you may be limited or ineligible for direct Roth IRA contributions. (There are strategies like the backdoor Roth conversion for higher earners — worth discussing with a tax professional.)

The investment flexibility is the main advantage. Because you choose the brokerage and the investments, you're not locked into a limited menu. That matters for people who want lower-cost index funds or more control over their portfolio.

Roth IRAs have no RMDs. This is a meaningful planning advantage. A traditional IRA requires RMDs starting at 73, just like a 401(k). But a Roth IRA has no required distributions during your lifetime, which gives you more control over when and how you withdraw money in retirement.

The IRS has a plain-English overview of IRA rules atIRS.gov/retirement-plans/individual-retirement-arrangements-iras.

How to Think About Which to Prioritize

For most people in the years leading up to retirement, a sensible order of operations looks something like this:

First: Contribute enough to your 401(k) to get the full employer match. This step is hard to argue against — the match is an immediate return on your contribution that no investment can reliably beat.

Second: If you're eligible, consider maxing out a Roth IRA. The tax-free growth and withdrawal flexibility make it a powerful complement to a traditional 401(k). The lower contribution limit means it won't replace your 401(k), but it adds valuable diversification across tax treatments.

Third: If you still have room and want to save more, go back to your 401(k) and increase contributions up to the annual limit.

This isn't a universal formula — your income, tax situation, employer plan quality, and how close you are to retirement all matter. But it's a reasonable framework to start from.

A Quick Word on Old 401(k)s

If you've changed jobs over the years, you may have old 401(k) accounts sitting with former employers. You generally have four options: leave it where it is, roll it into your new employer's plan, roll it into an IRA, or cash it out (which triggers taxes and often a 10% penalty — almost never the right move before 59½).

Rolling an old 401(k) into an IRA is often appealing because it consolidates your accounts and opens up a wider range of investment choices. We cover this in more detail in What Should You Do With an Old 401(k)?

The Bottom Line

Both accounts belong in most retirement savings plans. The 401(k) offers higher contribution limits and the employer match; the IRA offers investment flexibility and, in the Roth version, tax-free withdrawals. Used together, they give you more control over your tax situation in retirement than either one alone.

There's no single right answer about how much to put in each — that depends on your income, your employer's plan, and how many years you have left before you need the money. But understanding how each one works puts you in a better position to make the decision that fits your situation.

The IRS Publications590-Aand 590-B cover IRA contribution and distribution rules in full for those who want to go deeper.

This is educational information, not professional advice. Retirement rules change — Social Security, Medicare, and tax law are all subject to updates. Always verify current information with official government sources or a qualified professional before making decisions.