Is an IRA or 401(k) Better for Retirement Planning?

Clients often ask if it’s better to invest in an IRA or a 401(k). It’s a great question to ask, because it means that you’re actively engaging in planning for your ideal future.

At the end of the day, both accounts provide tax benefits while you’re saving for retirement, so neither is the wrong choice. Saving is always a good idea. But, you will no doubt get further if you create an intentional strategy. Your financial advisor can build a plan that meets your long-term retirement goals—but first, here’s what you should know.

IRA vs. 401(k): What’s the Difference?

The following are the main differences between an IRA and 401(k):

  • An IRA is opened by you with the help of a bank or broker, whereas a 401(k) is opened by your employer as part of your employment benefits.
  • The maximum contribution limit is much lower for an IRA ($6,000 for those under 50, $7,000 for those over 50), whereas it’s more than double for a 401(k) ($19,500 for those under 50, $26,000 for those over 50).
  • An IRA offers a broader range of investment options, whereas a 401(k) is much more limited.

IRA vs. 401(k): How Do I Choose?

The decision between an IRA and a 401(k) isn’t cut and dry. It will depend on the stage in your career, how much you have to contribute, whether your employer offers matching, and various other factors. Each of these accounts has pros and cons, adding to the difficulty of choosing between the two.

Here are the primary factors to consider when choosing where to save your money:

  • IRA: lower annual contribution limit and total control over a wide range of investments
  • 401(k): higher annual contribution limit, less control over investments and rates, and possible employer matching benefit

IRA vs. 401(k): What About Using Both?

You can choose between an IRA and a 401(k), but you also have the option to contribute to both, maximizing your savings. The approach is usually determined by whether or not your employer matches your contributions.

If they do match your contributions, it’s wise to start with your 401(k) and contribute the amount your employer will match. For example, if they match 100% of your contributions on up to 3% of your salary, contribute 3% of your salary to your 401(k) to take advantage of that benefit.

If you’ve taken full advantage of your employer’s contribution, you can maximize your earnings by switching your efforts to an IRA. Finally, after you’ve maxed out your contribution limit, you will then switch back to saving in your 401(k). This strategy may sound complicated, but it will help you save the largest possible amount per year.

On the other hand, what if your employer does not offer 401(k) matching?

If you don’t have a matching benefit, it’s wise to start with an IRA—until you max out your contribution limit, of course, after which time you would turn to your 401(k). This strategy will allow you to start with more investment options. Your financial advisor can help you determine which selection of investments align best with your goals.

Reach Out for Help

As we said, neither an IRA or a 401(k) is a poor decision. Everyone’s goals are different, and each account has its benefits. Your financial advisor can take your entire financial standing into account before helping you devise a plan that works for you.

Southwestern Investment Group’s family of advisors follow a holistic approach to financial advising. We empower you to choose the best option for your future based on a long-term financial strategy.

It’s never too early or too late to get serious about retirement savings. Contact us today to discuss your future.

Jeffrey Dobyns
Jeffrey T. Dobyns


President, SageSpring | Financial Advisor, RJFS 

Jeffrey T. Dobyns

President, SageSpring | Financial Advisor, RJFS

Jeff Dobyns has enjoyed extraordinary success providing comprehensive financial planning to retirees, entrepreneurs, entertainers, and executives by taking the time to truly know his clients, understand their goals and develop and execute their ongoing, strategic, financial plans.

Jeff earned his finance degree in business administration from Ohio University and has held executive positions with financial planning firms for more than two decades. After serving as Vice President of Investments of Lykins Financial Group, CPA’s, in his hometown of Westerville, Ohio, Jeff moved to Nashville, Tennessee to found SageSpring Wealth Partners in 2002. As its President, Jeff has led SageSpring to remarkable success, holding the distinction of being one of Raymond James’ top independent contractor offices, and a member of its Chairman’s Council*, every year since 2008.

Jeff’s true calling, however, is working directly with clients, helping them plan their financial futures in a manner that aligns with their values and helps provide them with financial confidence. To help meet these goals, Jeff leads the team of Dobyns Wealth Team and also incorporates the expertise of attorneys, accountants and other professionals to provide quality financial, tax and estate planning, and ongoing asset and risk management.

As independent advisory businesses, neither SageSpring Wealth Partners nor Dobyns Wealth Team hold any assets on behalf of clients, with such custodial and brokerage services being provided by Raymond James. As a leader in wealth management, Raymond James has an exemplary reputation and today serves more than $930 billion in client assets through 8,200 financial advisors worldwide (as of 9/30/2020).

In order to meet the highest standards of professionalism and ethics in the industry, Jeff is a CERTIFIED FINANCIAL PLANNERTM practitioner**, a Chartered Life Underwriter and a Chartered Financial Consultant. Jeff is also a participant of the Dave Ramsey SmartVestor program.

Jeff’s work and personal life are both guided by his faith and the Christian principles of honesty, generosity, compassion, and integrity. Accordingly, Jeff devotes considerable time and resources to a number of causes, including serving as a board member of Men of Valor, a prison ministry and mentoring program. He is also on the advisory board of The Signatry of Middle Tennessee, which works with families to increase their charitable giving to their favorite causes. Additionally, Jeff is on the advisory board for Halftime Institute, an organization that coaches marketplace leaders to discern and engage in their life purpose. Lastly, Jeff serves on the board of the Legacy Center of Nashville, a collaboration of independent coaching resources. He is a past board member of Porter’s Call, a Nashville charity that provides free counseling for musicians and their families, and the Martha O’Bryan Center, which empowers those in poverty to transform their lives through work, education, employment, and fellowship.

Jeff and his wife, Amy, are raising their family in Brentwood where they are members of the Brentwood Baptist Church, and their children, Gracyn, Hunter, and twins Tanner and Logan, attend the Christ Presbyterian Academy. For recreation, Jeff enjoys hunting, fishing and just being outdoors.

* Membership is based on prior fiscal year production. Re-qualification is required annually.

**Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

SmartVestor is an advertising and referral service for investing professionals (“SmartVestor Pros”) operated by The Lampo Group, LLC d/b/a Ramsey Solutions (“Ramsey Solutions”). Pursuant to an arrangement between Ramsey Solutions, SageSpring Wealth Partners and your advisor, your advisor pays Ramsey Solutions a flat monthly fee to: (a) be a SmartVestor Pro, (b) advertise services through the SmartVestor website, and (c) receive client referrals in the form of an initial introduction to interested consumers who are located in your advisor’s Pros geographic region. SageSpring Wealth Partners does not endorse and are not affiliated with Ramsey Solutions, except with respect to the arrangement described above, and neither Ramsey Solutions nor its agents are officers or employees of SageSpring Wealth Partners. Further, neither Ramsey Solutions nor its agents are authorized to provide investment advice or act in any way on behalf of SageSpring Wealth Partners, except in connection with providing your contact information to your advisor.

Ramsey Solutions’ relationship and agreement is between SageSpring Wealth Partners only. Raymond James Financial Services, Inc. is not affiliated with the solicitor arrangement between Ramsey Solutions and SageSpring Wealth Partners.

Raymond James is not affiliated with any of the organizations mentioned above.