401(K) vs IRA: How to choose the best retirement account for you

IRA and 401(k) plans are both great investing tools with different strengths. Ideally, you can use the two accounts together to create a comprehensive retirement portfolio so you can relax and enjoy your golden years.

Your first introduction to saving money was probably a childhood piggy bank or a stash of change hidden somewhere in your bedroom. This simple concept of putting money away for later is a powerful one, and can set you up for success in retirement.

As we get older, that piggy bank fades away as we transition to a savings account, and eventually other ways to compound our money. Often these choices are simple ones, but as our financial situation gains nuance, decisions about the best way to save money will come up. 

One of the most common choices one will have is whether to go with a 401(k) or an IRA. Both have their merits, but what is right for you?

Read on to learn the basics of these two financial options, and learn which to choose to maximize your savings potential.

401(K)s & IRAs – The Basics


  1. Offered by employers: 401(K)s are offered to employees by employers, but not all companies make them available. 
  2. Tax breaks: 401(K)s allow you to contribute pre-tax income, making your contribution larger than it would be if contributed after the IRS takes its cut. 
  3. Employers may match: Depending on the company, the employer may match your contribution up to a certain percentage. For example, the employer may match up to 4%, so if you contribute that amount they will as well.
  4. Lowered taxes: A positive side effect of pre-tax contributions is that it extends to your taxable income. If you make $100,000 and contribute $19,000, then your income tax will reflect on $89,000, not the total $100,000.
  5. Flexibility to move: More than ever it’s commonplace to move between companies during your career. If this is something you plan to do, the 401(K) can come with you as part of a rollover.


  1. Individually managed: A traditional IRA is an account that an individual can open and manage themselves – no employer required.
  2. Stocks and Savings: If opened through a brokerage, this unlocks access to investments in stocks and bonds. If opened through a bank, this will typically allow for deposited income.
  3. Tax savings: Similar to a 401(K), an IRA allows for pre-tax contributions to either investments or savings that can grow tax-deferred. 
  4. Traditional vs. Roth: Roth IRAs do not allow for a tax deduction when making a contribution, although when drawing on the asset no taxes are placed on the income. A traditional IRA allows for pre-tax contributions but withdrawals are taxed.
  5. Trustee-to-Trustee: Like a 401(K), an IRA can be rolled over from one bank/broker to another with no penalty.

Choosing What’s Best for You

401(K)s and IRAs are very similar financial tools. The main difference being that one is employer sponsored and the other is individually sponsored. 

One of the main benefits of an IRA is the control that it offers. By allowing pre-tax income to contribute towards investments of your choosing, you may find that with careful management, those investments could become incredibly valuable.

Consider that in traditional investing, when you sell your stock, taxes will be levied on those gains. With a Roth IRA, there are no taxes on the income created. This means that if the investments you make within your IRA skyrocket, you may set yourself up for incredible back end income.

401(K)s on the other hand – while valuable in their own right – can be restrictive. There is no control of the assets beyond choosing a limited selection of mutual funds so any real control over the underlying stock is simply not there. That being said, 401(K)s have their place as a solid financial tool that becomes all the more powerful when an employer offers matching contributions.

Final Thoughts

When considering which way to save and grow your assets, always lend your thought process towards diversification and situational awareness. 

While an IRA would often be the better choice if an employer doesn’t offer matching contributions, it can be incredibly powerful if they do. So where does this leave the discussion?

If you’re in the situation where your employer offers matching contributions AND you have the ability to open an IRA as well, utilizing both of these financial tools can be the best way to maximize your retirement earnings. 

Next Steps

While we covered quite a bit of information here, there’s still more to discuss. For example, is a Roth IRA better than a traditional IRA? What should I do with the limited control I have over my 401(K)? When opening an IRA should I choose a banker or broker?

At APO Financial, we’re here to guide you through the often complicated 401(K) and IRA process. Schedule a meeting with us today, and let us help you make the most of your retirement.

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Information relating to annuities is intended for educational purposes only and should not be construed as comprehensive or all-inclusive. Therefore, it should not be regarded as a complete analysis of the subjects discussed and should not be used to make an investment decision.

Annuities can be an important part of an overall portfolio but may not be appropriate for everyone. Before purchasing an annuity, it is important to understand the details of the product. Certain products may not be available in your state. The terms of each indexed annuity varies. It is always important to speak to a financial professional. about an annuity’s features, benefits and fees, and whether an annuity is appropriate for you, based on your financial situation and objectives. Participation rates, cap rates and/or index spreads may be subject to change by the insurance company according to the annuity contract provisions. If the insurance company makes such changes, this could adversely affect the return. Guarantees of an indexed annuity are backed by the claims-paying ability of the underwriting insurance company. The surrender charge period for a product may be longer, and the surrender charges may be higher than other annuity products. Indexed annuities are long-term investments. If the annuity contract is surrendered early, there is the possibility of a surrender charge being imposed and/or the funds may be subject to income taxes. The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances. With indexed annuities, there is the potential to lose money, depending on the product charges and minimum guarantee contract provisions. For additional information on annuities, reference the following websites: The FINRA (www.FINRA.org), the Securities and Exchange Commission (www.SEC.gov), Insured Retirement Institute (www.irionline.org), the National Association of Insurance Commissioners (www.NAIC.org) or your state's insurance department.