401(k) vs Traditional IRA
Workplace plan vs your own IRA - higher limits or more flexibility?
TLDR
401(k) has higher limits ($23,500 vs $7,000), employer match, and ERISA creditor protection. IRA has lower fees, any investment menu, and no plan-restricted withdrawal rules. Max both if you can. If forced to choose, 401(k) wins when there's a match; IRA wins when 401(k) has crap funds and high fees.
Side-by-side comparison
| Criterion | 401(k) | Traditional IRA | Winner |
|---|---|---|---|
| 2026 contribution limit | $23,500 (+$7,500 if 50+) | $7,000 (+$1,000 if 50+) | 401(k) |
| Tax treatment | Pre-tax / Roth option | Pre-tax (if income qualifies) | Tie |
| Employer match | Often yes | Never | 401(k) |
| Investment menu | Limited (10-30 plan funds) | Unlimited (any ETF, stock, fund) | Traditional IRA |
| Typical fund expense | 0.5-1.5% (some plans high) | 0.03-0.5% (low-cost ETFs available) | Traditional IRA |
| Income limit (deduction) | None | Phase-out $77K-$87K single (with workplace plan) | 401(k) |
| Withdrawal flexibility | Hardship withdrawal, loans | First-home, education, medical exceptions | Traditional IRA |
| RMD age | 73 | 73 | Tie |
| Loan available | Up to 50% / $50K | No | 401(k) |
| Creditor protection | ERISA - federally unlimited | $1M+ in bankruptcy, state-by-state otherwise | 401(k) |
| Required Minimum Distributions | Yes at 73 | Yes at 73 | Tie |
Run your own numbers
Plug in your numbers - the calculator updates instantly. Same math, your inputs.
Estimates only. Returns are not guaranteed. Tax rules and rates current as of 2026-05-16.
When each one wins
When 401(k) wins
- Your employer matches contributions (always take that first)
- You need higher contribution limits ($23,500 vs $7,000)
- Your 401(k) plan has good low-cost index funds
- You want unlimited creditor protection (ERISA covers 401(k) without dollar cap)
- You need access to a 401(k) loan
When Traditional IRA wins
- Your 401(k) only has expensive actively-managed funds (>1% expense ratio)
- You've already maxed the employer match
- You want to invest in specific stocks, ETFs, or sectors the 401(k) doesn't offer
- Your income is below the deduction phase-out (Traditional IRA deduction still works)
- You're self-employed (no 401(k); IRA is the easy option)
The math (typical scenario)
Two scenarios: $7,000/year for 25 years at 7%, comparing fees:
401(k) with 1.0% expense funds (typical retail share class) Net return after fees: 6% (7% - 1% expense) 25yr corpus on $7,000/yr: $383,792 Traditional IRA with 0.05% expense fund (e.g., VTSAX, VOO) Net return after fees: 6.95% 25yr corpus on $7,000/yr: $443,847 Difference: $60,055 due to fees alone - a 16% wealth boost from the IRA's lower fee structure. Plus the IRA gives you any investment vs the 401(k)'s 10-30 plan funds. But 401(k) gives you a match. A typical 50% match up to 6% of $80K salary = $2,400 free money per year. That's the same as a 34% first-year return on YOUR $7K - which no IRA can beat.
The IRA rollover trick
When you leave a job, roll the 401(k) to an IRA
The single biggest fee-savings move most workers can make: when you leave a job, roll your 401(k) into a Traditional IRA at Fidelity / Vanguard / Schwab. You go from plan-restricted funds at 0.5-1.5% expense to ANY ETF at 0.03-0.10%. On a $200K balance, that's $1,000-$3,000/year in fee savings - which compounds dramatically.
Reverse rollover for Backdoor Roth
If you want to do Backdoor Roth but have a Traditional IRA balance triggering pro-rata rules: roll the Traditional IRA INTO your current 401(k) (if it accepts rollovers). Now your only IRA balance is $0, and your Backdoor Roth is clean.
SEP-IRA / Solo 401(k) for self-employed
Self-employed have separate options: SEP-IRA (up to 25% of net SE earnings or $70K), Solo 401(k) (same total but better Roth features). These are different beasts from a Traditional IRA.
Frequently asked questions
Can I have both a 401(k) and a Traditional IRA?
Yes. But your Traditional IRA deduction may phase out if you're covered by a workplace retirement plan and earn above the limits.
What's the difference between Traditional IRA and Rollover IRA?
Functionally identical. 'Rollover IRA' is just a Traditional IRA you opened specifically to receive a 401(k) rollover. Same tax rules apply.
Are 401(k) loans a good idea?
Generally no - if you leave the job, the loan typically becomes due immediately or it's treated as a distribution (tax + 10% penalty if under 59.5).
Should I roll my old 401(k) into an IRA?
Usually yes - more investment choice, lower fees. Don't roll if (a) you're between 55-59.5 and may need penalty-free access (the 'rule of 55' only works on the 401(k) you left at 55+), or (b) you do Backdoor Roth and want to avoid pro-rata.
Can my spouse have an IRA if they don't work?
Yes - 'spousal IRA'. As long as one spouse has earned income, the non-earning spouse can fund a Traditional or Roth IRA up to the same $7,000 limit.
What if I leave the company before vesting?
You only get to keep your OWN contributions + any vested employer match. Unvested employer match stays with the company.
Are IRA contributions deadline December 31 or April 15?
April 15 of the following year. You can fund your 2026 IRA up until April 15, 2027.
Can I have multiple Traditional IRAs?
Yes - and from a tax standpoint they're all treated as one big IRA. The $7,000 limit applies across all combined.
Does Roth conversion count toward the IRA limit[1]?
No - conversion is separate from contributions. You can convert $200K from Traditional to Roth AND still make a $7,000 Roth contribution that year (income permitting).
Are 401(k) and IRA both subject to RMDs?
Yes, both Traditional 401(k) and Traditional IRA at age 73. Roth IRA has no RMDs. Roth 401(k) still has RMDs under current law (but rolling Roth 401(k) to Roth IRA eliminates them).