IRA vs 401(k): Which is Better for Retirement Savings?

What are the main differences between an IRA and a 401(k)?

The main differences include contribution limits, tax treatment, and employer involvement. IRAs are individual accounts, while 401(k)s are employer-sponsored.

Which one should I choose for my retirement savings?

It depends on your financial situation. If your employer offers a 401(k) with matching contributions, that’s often a great option. Otherwise, an IRA might offer more investment choices.

Can I have both an IRA and a 401(k)?

Yes, you can have both! Many people choose to contribute to both to maximize their retirement savings.

What are the tax benefits of each?

IRAs can be tax-deductible depending on your income, while 401(k) contributions are made pre-tax, reducing your taxable income for the year.

What happens if I withdraw money early from either?

Withdrawing early from either can result in penalties and taxes. Generally, you’ll face a 10% penalty plus income tax on early withdrawals.