Is It Better to Have a 401k or IRA?

Is It Better to Have a 401k or IRA?

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When it comes to saving for the golden years of retirement, there are different choices that are available to you. Two of the popular retirement saving options include the 401(k) plan and the individual retirement account. While both plans have some similarities, it’s important to understand their differences.

Both the 401(k) and IRA offer tax benefits like tax-deferred investments and the ability to invest in different kinds of assets like stocks and precious metals. But the main difference is that individuals open IRAs on their own through a custodian while employers offer 401(k)s. 

In this guide, we will explore both retirement plans and help you choose the ideal option for you. 

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Is It Better to Have a 401k or IRA?

What is a 401(k)? 

A 401(k) plan is a retirement plan that is sponsored by your employer. The plan allows the workers of the company to save for retirement while getting some tax advantages. When you save in a 401(k) account, your money can grow tax-free or tax-deferred until it’s time for the withdrawal. Every month, the employees will deduct a part of your salary and invest it in high-returning assets through the 401(k).

In 2023, the annual contribution limit to a 401(k) is $22,500. If you’re 50 years old or over, you can add $7,500 to your yearly contribution to catch up. But you can only save in a 401(k) account if your employer offers it. Employees will have the contributions automatically deducted from their paychecks and placed in the retirement account. If you decided to invest your money, this would be done automatically. 

Some employers will match their employee’s contributions, about three to five percent of their paycheck, making it easier to meet your retirement savings goals. 

Types of 401(k) Plans 

There are two types of 401(k) plans which are traditional and Roth. Both plans are different based on the tax advantages they offer.

  • Traditional 401(k): With this retirement account, you can save on a pre-tax basis. This means that as you deposit into the account, you won’t pay any taxes. The money will grow tax-deferred until it’s time for retirement, which is age 59 ½. When you withdraw your retirement funds, you will pay the ordinary income tax. Once you’re 73 years old, it would be compulsory to make minimum distributions, which are withdrawals, yearly. 
  • Roth 401(k): This retirement account involves paying taxes on your contributions or deposits as you make them. You will be saving with after-tax money. Since you’ll pay taxes earlier, your money will grow tax-free, and you can withdraw when you reach retirement age without paying any taxes. You can also roll your Roth 401(k) over to a Roth IRA.

Pros and Cons of 401(k) Plans


There are different pros and cons you can expect with a 401(k) retirement plan. The pros include:

  • Higher contribution limit than IRAs. 
  • No income limit when you contribute with pre-tax income.
  • Automatic deductions from your paycheck.
  • You can get free money with employer-matching contributions.
  • You can access a loan through the plan. 


You should also consider some downsides of the 401(k) plan:

  • Not all employers offer a retirement plan.
  • A limited selection of assets that you can invest in through the plan.

Employer Matching Contributions 

If you have a 401(k), you can get free money through company or employer matching contributions. Many employers provide matching contributions up to a percentage of your salary. For instance, if your salary is $50,000, your employer might offer a match of 5%. That would be $2,500. So, your employer would pay $2,500, and you will pay the same into your 401(k), increasing your savings. 

Is It Better to Have a 401k or IRA?

What is an IRA? 

IRA stands for an individual retirement account, and this is an account that allows you to save for retirement by yourself. Unlike a 401(k), you will open and contribute to the IRA by yourself and expect tax advantages. The IRA allows your money to grow tax-deferred or tax-free until it’s time to retire. You can even benefit from the compounding rate, allowing your retirement savings to accumulate over time.

The annual contribution limit for an IRA in 2023 is much lower than the 401(k). It is set at $6,500 per year. If you’re over 50 years, you can make catch-up contributions of $1,000 yearly. You can open an IRA through a custodian and invest in stocks, bonds, CDs, ETFs, mutual funds, and precious metals. 

Types of IRAs 

There are different types of IRAs that you can use to prepare for retirement, and they offer different tax advantages.

  • Traditional IRA: With a traditional IRA, you can personally save for retirement on a pre-tax basis. This means that you won’t pay any taxes on your deposits into the IRA, so the money will grow tax-deferred until it’s time for retirement. When you’re age 59 ½ or older, you can withdraw the money at an ordinary tax rate. Just like with 401(k) plans, you need to take minimum distributions at age 73. 
  • Roth IRA: This is the opposite of a traditional IRA, as it allows you to save using after-tax money. You will pay taxes on your contributions as they are made each time, but when it’s time for retirement, you can withdraw it tax-free. There are no minimum withdrawals, and you can pass the money down to your heirs. 
  • Precious Metals IRA: Also called a gold IRA, this is a specialized individual retirement account that allows you to hold gold and other precious metals as an investment for your retirement. You will have to work with a trusted custodian to open the IRA, and they are set up with pre-tax or after-tax funds. 

Recommended Companies for Precious Metals IRAs

Holding gold and other precious metals in your IRA has become a popular option among investors. This is because gold is a store of value and an inflation-proof asset, so it retains its value even during economic downturns. If you’re interested in opening a precious metals IRA, here are some recommended companies to get started with.


Augusta Precious Metals is a reputable gold investment company that offers precious metals IRAs. The company has IRS-approved gold, silver, platinum and palladium. It offers one-on-one customer service with customer education and experts that help you with all the IRA paperwork. But, the minimum required amount is $50,000, which is a bit high.

#2. Goldco


Goldco is a well-known gold IRA investment company that offers a minimum investment amount of $25,000. The company only offers gold and silver IRAs which is a bit limited. There are flat annual fees to consider, but it is affordable, and you can choose between segregated and non-segregated storage for your precious metals. 

If you want to open your IRA on a budget, you should consider American Hartford Gold. The company offers a minimum investment amount of $5,000 and can even waive your fees for three years. You can enjoy their reliable customer service and price match guarantee. The company also offers different kinds of promotions.

Pros and Cons of IRAs


There are different pros of an IRA that you can look out for. The most important options include:

  • IRAs are available to anyone getting earned income.
  • Different investment options, including real estate and precious metals.
  • Non-earning spouses can contribute.
  • Roth-IRA offers penalty-free withdrawals. 
  • Roth-IRA is ideal for estate planning.
  • It is easy to set up a Roth or traditional IRA.


You should also consider some downsides of opening an IRA.

  • The contribution limits are much lower.
  • How much you can contribute is limited by income. 
Is It Better to Have a 401k or IRA?

Which is Better Between, a 401(k) or an IRA? 

Now that we’ve explained the 401(k) and IRA plans let’s compare their differences. It is usually recommended to get the advantages of the two plans by maxing out your contributions to both. But, if you cannot afford to save in both, you should choose one based on your options.

If you have a secure job and your employer offers a 401(k) plan, then this would be a good option, especially if your employer will match your contributions. If not, you should go for an IRA as you can manage the retirement account yourself and benefit from the tax advantages. 

Here are some benefits that the IRA has over the 401(k):

  • It is easier to obtain: It is easy to contribute to an IRA every year, and even your spouse can set one up if they are not working. You can open an IRA with a bank, online brokerage or a custodian. It is even possible to open it online. For a 401(k), you need to work with a company that offers the plan. 
  • It has a better selection of assets: If you want to invest in different kinds of assets for your retirement, an IRA is better. It offers a wide range of options, including stocks, mutual funds, bonds, ETFs, CDs, precious metals, and real estate. 401(k)s are usually limited to mutual funds.
  • It is easier to set up the Roth IRA: Both the 401(k) and IRA offer Roth versions. Only a few employers offer a Roth 401(k), but anyone can open a Roth IRA as long as they qualify for it. 
  • Manage it yourself: IRAs are easy to manage yourself, unlike 401(k)s which are connected to your employer. Your company would automatically fund the retirement account, but with the IRA, you can decide whether to contribute or not.

There are some advantages that 401(k) plans offer over IRAs. These include:

  • Employer match: Although it is harder to open, 401(k)s offer free money through the employer or company match. Your employer might match your contributions and increase your savings, but with the IRA, you will be saving alone.
  • No investment knowledge is needed: You don’t need to do a lot of research when you have a 401(k). Although the available assets are limited, your company will take care of the account, and you might also get advice or coaching. 
  • Higher contribution limit: If you have a higher income, you will benefit from the 401(k) as it offers a much higher contribution limit. It is set at $22,500, which is much higher than the $6,500 for IRAs. Also, the catch-up contribution is $7,500 for the 401(k) and $1,000 for IRAs. 
  • Loans are easy to access: You can take a loan with your 401(k), unlike with the IRA. If you try to withdraw from either account before the retirement age, you will pay taxes and penalties. With a 401(k), depending on your employer’s plan, you can take out a loan. 

Recommended Strategy for Choosing Between 401(k) and IRA 

If you’re still unsure about which you should choose between the 401(k) and IRA, you can follow a different strategy. 

For one, check if your employer offers a 401(k) with a company match, then put enough money in it to get the maximum match. This would allow you to save a lot in the 401(k) since your employer will add to it. Once you get the match, you should then save it in your IRA. Since the IRA has a lower contribution limit, you can max it out for the year. Then, move back to your 401(k) and keep making contributions for the rest of the year. This allows you to take advantage of both retirement plans.

On the other hand, if your employer does not offer a 401(k) plan or you are self-employed, you can consider opening a traditional, Roth or precious metals IRA. When working with a broker or custodian, you can get access to different assets to invest in. You can also open a solo 401(k) if you are self-employed. All in all, having an IRA will offer different benefits since you can widely invest for your retirement. 

Final Thoughts

The ideal retirement plan for any individual would be to combine an IRA or a 401(k). But, if you cannot afford to open both, you should consider your income, the options available to you, and what asset you would like to invest in first. When you understand the differences between the two retirement plans, you can make the ideal choice for your future and start saving for your golden years.