When planning for retirement, most people have heard of 401(k)s and IRAs. But which one should you prioritize? Or can you use both? In this post, we’ll break down the key differences and help you decide what works best for your financial goals.
💼 What Is a 401(k)?
A 401(k) is an employer-sponsored retirement plan. You contribute directly from your paycheck, and in many cases, your employer may offer a matching contribution—essentially free money toward your retirement.
Key Features:
- Higher annual contribution limit ($23,500 in 2025; $31,000 if age 50+)
- Pre-tax contributions (Traditional 401(k)) or after-tax (Roth 401(k))
- Employer match (if offered)
- Funds often limited to plan-selected investment options
🏦 What Is an IRA?
An IRA (Individual Retirement Account) is something you open yourself, outside of your employer. You get more control over investments, but lower contribution limits.
Key Features:
- Contribution limit: $7,000 in 2025 ($8,000 if age 50+)
- Can be Traditional (pre-tax) or Roth (after-tax)
- Wide range of investment options (stocks, ETFs, mutual funds)
- Income limits apply for deducting Traditional IRA or contributing to Roth IRA
🔍 401(k) vs IRA: Head-to-Head
| Feature | 401(k) | IRA |
|---|---|---|
| Contribution Limit (2025) | $23,500 | $7,000 |
| Catch-Up (Age 50+) | +$7,500 | +$1,000 |
| Income Limit to Contribute | No (for Traditional) | Yes (for Roth and deductible Traditional) |
| Investment Options | Limited by plan | Wide variety |
| Employer Match | Yes (if offered) | No |
| Roth Option Available | Yes (Roth 401(k)) | Yes (Roth IRA) |
💡 So Which Should You Use?
Start with your 401(k) if:
- Your employer offers a match — take full advantage of it first
- You want to contribute a higher amount each year
- You prefer automatic paycheck deductions
Consider an IRA if:
- You want more investment choices
- You’ve maxed out your 401(k)
- You qualify for a Roth IRA based on income
- You’re self-employed or changing jobs
Pro Tip: Many high-income earners use both. You can contribute to a 401(k) and an IRA in the same year, as long as you meet eligibility requirements. Some even explore backdoor Roth IRA strategies to bypass income limits.
🔚 Final Thoughts
There’s no one-size-fits-all answer—but understanding the strengths of each account can help you build a tax-smart retirement strategy. If you’re unsure what works best in your situation, consider speaking with a tax professional or financial advisor.
Need help navigating your 401(k), IRA, or backdoor Roth options? Let’s talk.
LINE11 CPA LLC 
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