What are the differences between a 401K and an IRA?

401(k), IRAs
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January 2017
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Some of the main differences are:

  1. A 401(k) plan is an employer-sponsored plan therefore you must work for the company in order to participate in the 401(k). In most cases anyone under the age of 70.5 who earns income can participate in an IRA.
  2. The 401(k) plan usually has better creditor protection than an IRA since it is an employer-sponsored investment plan.
  3. 401(k) plan contributions are usually made through payroll deductions. An IRA contributions usually are done by the individual writing the check and depositing in the IRA.
  4. A 401(k) Plan can offer loan privileges. An IRA does not have loan privileges.
  5. A 401(k) Plan can have an employer match provision. An IRA does not
  6. Contribution amounts are higher for a 401(k) ($18K for 2017). An IRA has a contribution amount of $5,500 (not including catch up)
  7. The catch up amount in a 401(k) is $6,000 in 2017. An IRA catch up is $1,000 in 2017.
  8. The investment options in a 401(k) are usually more limited than an IRA 
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