IRA vs. 401(k): What's the Difference?
Both IRAs and 401(k) plans offer tax advantages for retirement savings — but they work differently, have different limits, and serve different planning purposes. Here's what to know.
Side-by-Side Comparison
| Feature | IRA | 401(k) |
|---|---|---|
| Who establishes it? | Individual | Employer |
| 2026 contribution limit | $7,500* | $24,500 employee deferral* |
| Employer contributions | Not for traditional or Roth IRAs; SEP and SIMPLE IRAs may include employer contributions | Yes, when permitted by the plan |
| Roth option | Roth IRA | Roth 401(k), when offered |
| Loans | No | May be permitted |
| Investment choices | Generally broad | Determined by the plan |
| Income limitations | Can affect IRA deductions/Roth IRA eligibility | Employee contributions generally aren't subject to Roth IRA-style income limits |
| Profit sharing | No | May be available |
| Potential total contributions | Relatively limited | Can be substantially higher depending on plan design |
| Creditor protections | Vary | Generally stronger federal ERISA protections for qualifying plans |
| Required distributions | Depend on account type and circumstances | Depend on account type and circumstances |
* Limits include catch-up contributions where applicable. Limits are subject to change. Consult a tax advisor for current figures.
What the Table Doesn't Tell You
Contribution limits differ significantly.
An IRA caps annual contributions at $7,500 for 2026 (including catch-up). A 401(k) allows up to $24,500 in employee deferrals — and when employer contributions and profit sharing are factored in, total plan contributions can be substantially higher depending on plan design.
Employer contributions can make a meaningful difference.
A 401(k) may include employer matching or profit-sharing contributions that an IRA simply cannot. For business owners, this can be one of the most powerful tools for building retirement assets in a tax-advantaged way.
Both offer Roth options — with different rules.
A Roth IRA has income limits that may restrict eligibility for higher earners. A Roth 401(k), when offered by the plan, generally does not have those same income restrictions — which can make it an important planning option for executives and business owners.
Investment flexibility varies.
IRAs typically offer a wide range of investment choices. 401(k) plans are limited to the investment options selected by the plan sponsor, which can vary widely in quality and cost.
Creditor protections are generally stronger in a 401(k).
Qualified 401(k) plans generally receive stronger federal ERISA creditor protections than IRAs, which are governed by state law and can vary significantly.
An IRA can provide flexibility and broad investment choices, while a 401(k) may provide significantly greater contribution opportunities, employer contributions, loan provisions, and other plan-design features. For many individuals, the decision isn't necessarily IRA or 401(k). Both may play a role in the overall retirement strategy.
Not Sure Which Strategy Fits Your Situation?
We work with clients to evaluate retirement account decisions alongside their broader tax and investment picture — not in isolation.
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