Retirement Planning: 401(k) vs IRA - Which is Better?

401(k) vs IRA: Understanding Your Options

Both 401(k)s and IRAs are powerful retirement savings vehicles, but they serve different purposes and have different rules.

401(k) Plans

Key features:

• Employer-sponsored retirement plan
• Higher contribution limits ($22,500 in 2023 + $7,500 catch-up if 50+)
• Possible employer matching (free money!)
• Automatic payroll deductions
• Limited investment options chosen by employer

IRA (Individual Retirement Account)

Key features:

• Individual account you open yourself
• Lower contribution limits ($6,500 in 2023 + $1,000 catch-up)
• Wide range of investment choices
• No employer matching
• Income limits for tax deductions (Traditional IRA)

Traditional vs Roth Options

Both 401(k)s and IRAs come in Traditional and Roth varieties:

• Traditional: Tax-deductible contributions, taxable withdrawals
• Roth: After-tax contributions, tax-free withdrawals

Contribution Limits 2023

• 401(k): $22,500 ($30,000 if 50+)
• IRA: $6,500 ($7,500 if 50+)
• HSA (bonus): $3,850 individual, $7,750 family

Recommended Strategy

1. Contribute to 401(k) to get full employer match
2. Max out IRA contributions ($6,500)
3. Return to 401(k) to maximize contributions
4. Consider HSA for healthcare expenses in retirement

Use our compound interest calculator to project your retirement savings growth.