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401(k) vs IRA? Side-by-Side Comparison
What IRA Is Best for a Self-Employed Person?
A Simple Guide on IRA Contribution Reporting
A Comprehensive Guide to Traditional and Roth IRAs

401(k) vs IRA? Side-by-Side Comparison

Not all retirement accounts are created equal, and the best choice for you depends on your situation. 401(k)s and IRAs both offer ways to grow your savings, but they do it differently. We’ll walk through the features of each account and show how they can fit into your personal retirement plan.

What is a 401(k)?

A 401(k) is a retirement savings plan usually offered through your employer. You contribute a portion of your paycheck (often before taxes) into the plan, and your money can grow over time through investments such as stocks, bonds, or mutual funds.

One of the biggest advantages? Employer contributions. Many companies offer matching contributions, which is basically an extra boost to your savings. For example, some employers match a percentage of your contributions up to a certain part of your salary, like 50% of what you contribute up to 6% of your pay. Others might offer a dollar-for-dollar match or a tiered structure that rewards higher contributions. 

Key Features:

  • Contribution Limits: In 2025, you can contribute up to $23,500 if you’re under 50, and $31,000 if you’re 50 or older (catch-up contribution included).
  • Taxes: Contributions are typically pre-tax, reducing your taxable income now. Taxes are paid when you withdraw in retirement.
  • Employer Match: Many employers contribute as well, which can significantly accelerate your savings.
  • Investment Options: Your choices are generally limited to what your plan offers, which can vary widely.
  • Withdrawal Rules: You can start withdrawing without penalties at age 59½. Early withdrawals may incur taxes and penalties unless you meet certain exceptions.
  • Required Minimum Distributions (RMDs): Required starting at age 73.

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Pros: Employer match, high contribution limits, automatic payroll deductions make saving easy.

Cons: Limited investment options and penalties for early withdrawals.

What is an IRA?

An IRA, or Individual Retirement Account, is a retirement account you open yourself, independent of your employer. The most common types are Traditional and Roth IRAs, which differ mainly in how contributions and withdrawals are taxed. There’s also the SEP IRA, designed for self-employed individuals and small business owners.

Traditional IRA

With a Traditional IRA, you make contributions with pre-tax dollars (if you qualify). Your investments grow tax-deferred, meaning you won’t pay taxes on the earnings until you withdraw the money in retirement.

Key Features:

  • Contribution Limits: $7,000 annually, or $8,000 if you’re 50 or older.
  • Taxes: Contributions may be tax-deductible depending on your income and whether you have a workplace retirement plan. Withdrawals are taxed as ordinary income.
  • Withdrawal Rules: Penalty-free withdrawals begin at 59½, but taxes apply.
  • Required Minimum Distributions (RMDs): Required starting at age 73.

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Pros: Tax-deductible contributions can lower your taxable income today.

Cons: Withdrawals are taxed later, and RMDs are mandatory.

Roth IRA

A Roth IRA works a little differently. Contributions are made with after-tax dollars, so you pay taxes up front but your money grows tax-free, and qualified withdrawals in retirement may be tax-free.

Key Features:

  • Contribution Limits: $7,000 annually, or $8,000 if you’re 50 or older.
  • Taxes: Contributions aren’t deductible, but earnings and withdrawals are tax-free if certain conditions are met.
  • Withdrawal Rules: Contributions (not earnings) can be withdrawn anytime without penalties or taxes. Earnings are tax-free if the account has been open for at least five years and you’re at least 59½.
  • Required Minimum Distributions (RMDs): Not required during your lifetime.

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Pros: Growth and withdrawals may be tax-free, no RMDs, flexibility in retirement.

Cons: Contributions aren’t tax-deductible, and income limits may restrict eligibility.

SEP IRA: For the Self-Employed

If you’re self-employed or run a small business, a SEP IRA (Simplified Employee Pension) can be a powerful tool to boost your retirement savings. It’s designed to let you contribute a larger portion of your income than you could with a Traditional or Roth IRA, which could help you catch up quickly on retirement contributions.

Key Features:

  • Who Can Open It: Self-employed individuals or small business owners.
  • Contribution Limits (2025): Up to 25% of net self-employment income, with a maximum of $70,000.
  • Taxes: Contributions are tax-deductible, and your savings grow tax-deferred.
  • Employer Contributions: Only the employer (or self-employed individual) can contribute.
  • Withdrawal Rules: Penalty-free withdrawals begin at 59½; early withdrawals may incur taxes and penalties.
  • Required Minimum Distributions (RMDs): Required starting at age 73.

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Pros: High contribution limits, tax-deferred growth, ideal for self-employed or small business owners‍

Cons: Only the employer can contribute, and investment options depend on the account provider

Be Retirement Confident.

Roll over all your old 401(k)s into a PensionBee Individual Retirement Account (IRA). It takes just a few minutes to sign up.

Get started

401(k) vs IRAs: How They Compare

Who Can Open It

  • 401(k): Employer-based
  • IRA (Traditional/Roth): Anyone with earned income
  • SEP IRA: Self-employed or small business owners

Contribution Limits (2025)

  • 401(k): $23,500 (under 50), $31,000 (50 or older)
  • IRA (Traditional/Roth): $7,000 (under 50), $8,000 (50 or older)
  • SEP IRA: Up to 25% of net self-employment income (max $70,000)

Tax Treatment

  • 401(k): Pre-tax contributions (taxed later)
  • Traditional IRA/SEP IRA: Pre-tax contributions (taxed later)
  • Roth IRA: After-tax contributions (tax-free later)

Employer Match

  • 401(k): Often available
  • IRA (Traditional/Roth): None
  • SEP IRA: Employer (or self-employed individual) contributes

Investment Choices

  • 401(k): Limited to plan options
  • IRA/SEP IRA: Wide range of options (stocks, bonds, mutual funds, ETFs)

Required Minimum Distributions (RMDs)

  • 401(k): Required at 73
  • Traditional IRA/SEP IRA: Required at 73
  • Roth IRA: None

Early Withdrawal

  • 401(k) and Traditional/SEP IRA: Penalties and taxes before 59½.
  • Roth IRA: Contributions can be withdrawn anytime tax-free but penalties still may apply.

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Combining Accounts for Maximum Impact

You don’t always have to choose one over the other, many people use both. Here’s a simple way to think about it:

  • Start with a 401(k) if your employer offers a match. That’s extra money you don’t want to leave on the table.
  • Add an IRA for extra flexibility and investment options. A Roth IRA can be especially valuable if you expect to be in a higher tax bracket in retirement.
  • Consider a SEP IRA if you’re self-employed or own a small business, allowing higher contributions and extra tax benefits.

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For example, say you save $15,000 this year. You might put enough into your 401(k) to get the full employer match, let’s say $10,000. Then you could put the remaining $5,000 into a Roth IRA. It’s like building your retirement savings on two strong pillars: one grows tax-deferred, the other grows tax-free, giving you flexibility and more control down the road.

How to Decide

Here’s a friendly way to narrow it down:

  • Look at your employer match: If there’s extra money on the table, contribute enough to get it.
  • Consider your current tax situation: If you want to lower your taxable income today, a 401(k), a Traditional IRA, or a SEP IRA can help. Prefer tax-free income later? A Roth IRA may be ideal.
  • Flexibility: IRAs and SEP IRAs usually offer more investment options and easier access to contributions.
  • Income limits: Roth IRA eligibility and Traditional IRA deductibility can be affected by income and existing workplace retirement plans.
  • Rolling over a 401(k) to an IRA: If you've left an employer, moving your old 401(k) to an IRA can give you more control and investment options.

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Make Rollovers Simple with PensionBee

Both 401(k)s and IRAs are powerful tools to help you build a comfortable retirement. A 401(k) is great for high contribution limits and employer matches, while an IRA offers flexibility and tax advantages tailored to your situation. Using both strategically can help you balance taxes now and later, diversify your investments, and ultimately give you more control over your retirement future.

Once you’re ready to take the next step, PensionBee helps make it simple to roll over your old 401(k)s and IRAs into one account, giving you a clear view of your savings. Many rollovers happen automatically, but if yours needs extra attention, our personal rollover managers (called BeeKeepers) are ready to guide you every step of the way. With five investment portfolios built using ETFs powered by State Street, you can keep your focus on growing your savings and preparing for the retirement you want.

Be Retirement Confident.

Roll over all your old 401(k)s into a PensionBee Individual Retirement Account (IRA). It takes just a few minutes to sign up.

Get started
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Options on Rollovers
A rollover is not your only option for an old 401(k) or IRA, you may alternatively decide to leave your assets with your former employer, rollover your plan to a new employer or to cash in your old plan with the resulting tax penalties applied.  PensionBee Inc. does not provide tax advice or individual recommendations as to which of these options is most appropriate for your individual circumstances.  To understand the implications of each of the options available to you and help you decide between them you may wish to consult a tax professional who has knowledge of your individual circumstances. For more information see FINRA - Retirement Accounts.

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