Should You Choose an IRA Over a 401(k) for Retirement Savings?

One of the biggest advantages of investing in retirement accounts is the tax savings. Any amount you contribute to an IRA or 401(k) is tax-deductible in the year you make it. If you opt for the Roth version of those accounts, you’ll pay taxes now in exchange for tax-free withdrawals later. You also don’t have to pay any taxes on dividends or capital gains in any of those accounts.

Those massive tax advantages can help you save more for retirement and keep more of your investments for spending in your golden years. But deciding which tax-advantaged account is best can be tough. The IRA and 401(k) offer some similar benefits, but they have key differences that could make one a better option than the other for some retirement savers.

Here’s what you need to know.

The incredible advantages of a 401(k) over an IRA

If you’re leaning toward an IRA as your savings vehicle of choice, be sure you’ve considered everything a 401(k) has to offer. In particular, there are two key advantages of a 401(k).

First is the employer match. The matching contribution is practically part of your compensation. All you have to do to earn it is invest some of your salary into the company’s 401(k) plan. Employer contributions usually vest immediately, meaning you’ll have full control over the funds as soon as they hit your account. Matches range from 50% to 100% of your contributions up to a specified percentage of your salary. For many that can be thousands of dollars.

The second advantage is the high contribution limits for a 401(k). For 2025, the limit is $23,500. That doesn’t include the company match, as mentioned above. By comparison, the contribution limit for an IRA is just $7,000.

So, for anyone looking to save a lot of money in their retirement accounts, a 401(k) is an indispensable tool. Investors could save tens of thousands of dollars per year and build up a significant retirement portfolio balance in just a few years.

The unfortunate truth about your 401(k)

While the advantages of a 401(k) are great, it comes with some serious downsides you have to consider as well.

First of all, you may have to pay some fees to participate in your employer’s 401(k). There can be administrative fees and service fees to consider. On top of that, you’ll have to pay an expense ratio on the funds you invest your 401(k) contributions into. The average 401(k) investor pays around 0.4% in total, but if you work for a smaller employer, you could face higher fees. A 0.4% fee might not sound like a lot, but compounded over an entire career it can take a significant bite out of your retirement savings.

The fees of your 401(k) might not be bad, but many of them also limit what you can invest in. Most 401(k) plans offer a menu of mutual funds or exchange-traded funds (ETFs) for you to buy in your 401(k). You can’t invest outside of that menu unless your plan also offers a self-directed brokerage account. You’ll typically have to pay a fee to use a self-directed account, but it can often be worth it. That’s because the fund options in most 401(k) plans can be extremely limiting.

By comparison, you can open an IRA with no fees and you can invest in anything you want as long as your brokerage of choice offers it. That flexibility can be very appealing.

Should you choose an IRA over a 401(k)?

The low cost and flexibility of an IRA is extremely appealing for a lot of investors. Not to mention you have the freedom to move your IRA to any brokerage you want if you decide you don’t like your original choice. You’re stuck with your company’s 401(k) provider no matter what (until you leave that job).

But the choice isn’t necessarily an either/or decision.

You can have both a 401(k) and an IRA, and you probably should.

Even if the fees on your 401(k) are extremely high and the investment options are lacking, it likely makes sense to contribute enough to get your full company match. After that, you can put money into an IRA that you fully control, giving you the best of both worlds.

If you end up maxing out your IRA contribution limit, you can opt to add more to your 401(k) or consider using a taxable brokerage account instead. In many instances, keeping some retirement savings in a taxable account instead of a 401(k) can work out better in the long run.

There’s no one-size-fits-all solution. Consider your personal circumstances and investment style and make the decision that works best for you.