401k vs IRA: What to Consider

When comparing a 401k and an IRA, there are a number of factors that you should consider. Regardless of which one you choose, there are advantages to both forms of investment. Both investment tools can be used for your retirement. Putting money into a 401k or IRA should be a high priority while you are still working. However, choosing one over the other can sometimes be tough. Here are a few things to think about if you're trying to decide between a 401k and an IRA.

Work Situation

The first thing you have to look at is your work situation. If you work for an employer that has a 401k, then you should strongly consider going with a 401k. You have to access a 401k through an employer that you work for. Not everyone can get one. With an IRA, you don't have to work for a particular employer. You can get an IRA regardless of who you work for and even if you are self-employed.

With a 401k, you might be able to receive employer matches. This means that your employer might have a program that puts in money into your 401k depending on how much you deposit. For example, if you put in 4% of your paycheck, they will put in 2%. While not every employer does this, a good percentage of them do. Therefore, if your employer has a matching program, you will be better off with a 401k. Don't ever leave free money sitting on the table.

Options for Investment

Another factor that you will want to look at with 401k and IRA's are the investment options. If you like to have a lot of options in front of you, an IRA will probably be the best choice for you. With a 401k, you will most likely have many fewer choices for your investments. They will have some preselected funds that you can put your money into and that is all. You can also only move the funds around within your account three or four times per year. With an IRA, you can close out positions and open new investments whenever you want. An IRA is much more customizable in this regard.


The fee structure works a little differently between IRA investments and a 401k. When you decide to invest with a 401k, a mutual fund will probably eliminate the front end fees that you usually have to pay. With a 401k, they will be getting much more business from all of the members of your company and can therefore afford to waive some of the fees for you. With an IRA, you are on your own, so you might have to pay a few more fees than your 401k counterparts. The fees usually aren't that much, but over time they can add up over time.

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