Retirement
401(k) vs IRA: What's the Difference and Which Should You Use?
401(k) and IRA are both tax-advantaged retirement accounts, but they work differently and have different limits. Most retirement savers should use both.
Quick Comparison
| 401(k) | IRA (Traditional/Roth) | |
|---|---|---|
| 2024 Contribution Limit | $23,000 ($30,500 if 50+) | $7,000 ($8,000 if 50+) |
| Employer Match? | Often yes | No |
| Investment Choices | Limited (plan menu) | Nearly unlimited |
| Income Limits? | No | Yes (Roth IRA) |
| Early Withdrawal Penalty | 10% + taxes (before 59½) | 10% + taxes (before 59½) |
The Order of Operations
If you're not sure where to direct retirement savings, follow this priority order:
- 401(k) up to employer match — this is free money, always take it
- Max out Roth IRA — $7,000/year with tax-free growth
- Max out 401(k) — remaining $16,000 at current limits
- Taxable brokerage — after maxing tax-advantaged accounts
Never leave a 401(k) employer match on the table. A 50% match on the first 6% of salary is an instant 50% return — no investment comes close.
Calculate Your Retirement Savings Path
Use our retirement calculator to see how your contributions add up over time.
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