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Saving for retirement: 401(k), IRA, or both?

Both 401(k) plans and individual retirement accounts (IRAs) offer tax advantages and feature similar treatment of contributions and distributions. But the two differ in many other ways. Below are summaries of their key features.


As employer-sponsored plans, 401(k)s are available only to employees of companies that offer them and may include length-of-service requirements before an employee can deduct contributions from their payroll checks. In many plans, the employer matches up to a certain percentage of the employee’s contribution or makes a nonelective contribution (an employer contribution made regardless of whether the employee contributes).

401(k) plans offer generous contribution limits — up to $20,500 in 2022 and up to $27,000 if you are age 50 or greater. Total contributions, including any employer contributions, can be as high as $61,000 in 2022. Many plans also offer a loan feature that allows you to borrow against your vested account balance.


You can open an IRA on your own, although the tax deductibility of contributions may be limited depending on your income and whether you or your spouse participates in a workplace plan such as a 401(k) (see below). Contributions to a Roth IRA are not tax deductible but qualified distributions may be tax free. For 2022, you can contribute up to the smaller of your taxable compensation or $6,000 plus an additional $1,000 if you are age 50 or older. If you have more than one IRA, the annual contribution limits apply in the aggregate (as if you have just one IRA). Contributions for a given tax year can be made up to April 15 of the following year.

401(k), IRA, or both?

In general, if your employer offers a 401(k) plan, it’s a good idea to participate. If you do not have access to a 401(k), an IRA offers similar tax benefits, albeit with significantly lower contribution limits.

For many people, the question is not which one to choose, but whether you can contribute to both a 401(k) and an IRA. If you or your spouse participates in a 401(k) or other workplace plan, there may be limits to the deductibility of your contributions to a traditional IRA. Moreover, you may not contribute to a Roth IRA if your income exceeds certain levels.

Traditional IRA deductibility limitations: If you participate in a workplace plan and you make over $68,000 ($109,000 for joint filers) in 2022, your deduction will begin to be phased out. If you make $78,000 or more in 2022 ($129,000 for joint filers), you cannot deduct any of your contributions.

If you don’t participate in a workplace plan, but you file a joint return with a spouse who is covered by an employer-sponsored plan, your deduction will begin to be phased out if you and your spouse make over $204,000 in 2022. You cannot deduct contributions to an IRA if your joint income is $214,000 or more in 2022.

There are no income limits to contribute non-deductible contributions to a traditional IRA.

Roth IRA income eligibility: Your contributions to a Roth IRA will begin to be phased out if your income is $129,000 or more in 2022 ($204,000 for joint filers) and you cannot contribute to a Roth IRA if your income is $144,000 or more in 2022 ($214,000 for joint filers).

401(k)s vs. IRAs at a glance

Individual contribution limit (2022)
Catch-up contribution limit (2022)
Employer match
Yes, if offered by plan
Contribution deductibility (traditional)
Fully deductible (pretax)
Deductibility based on income, filing status and if covered under an employer plan
Traditional or Roth
Yes, if offered by plan
Tax treatment of distributions
Tax-deferred (pretax) or tax-free (after-tax/Roth)
Tax-deferred (pretax) or tax-free (after-tax/Roth)
Through employer
Through bank or other financial service provider
Vesting period may be required for employer contributions
Loans from account
Yes, if offered by plan
Required minimum distributions
Yes, if 401(k) or traditional IRA; no, if Roth IRA
Yes, if 401(k) or traditional IRA; no, if Roth IRA

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