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.

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Jeffrey T. Dobyns


President, SageSpring | Financial Advisor, RJFS 

Jeffrey T. Dobyns

President, SageSpring | Financial Advisor, RJFS

Beyond crunching numbers and investment strategies, at SageSpring, we’re about building relationships. When you encounter Founder & President of SageSpring, Jeff Dobyns, it’s easy to understand why this is at the very heart of who we are as a firm. You won’t find stuffy formalities with Jeff; instead, you can expect to find him sharing a warm smile, communicating a compelling vision, or patiently untangling life’s complex challenges with clients. He believes in truly getting to know clients, understanding their aspirations and priorities, and navigating their financial plans with a tailored, comprehensive approach. Our team members have often been caught taking notes on Jeff’s effortless relationship skills from a distance, and we admire them for striving to learn from one of the best. 

Jeff’s financial expertise and wisdom are the perfect match to his innate people skills. Jeff holds the prestigious CERTIFIED FINANCIAL PLANNERTM certification, Chartered Life Underwriter (CLU®), and Chartered Financial Consultant (ChLU®) designations, and has held executive positions with financial planning firms for more than two decades. 

His dedication extends beyond the office to the boardroom and the local community, where Jeff is passionate about giving back. He serves as Chairman of the Board of Men of Valor, a prison ministry and mentoring program. Jeff also serves on the board of Send Musicians to Prison, which shares hope, healing and restoration with the imprisoned through musicians & artists. Jeff actively supports other initiatives in the community by sitting on the board of The Signatry of Middle Tennessee and the Halftime Institute of Nashville. 

Witnessing his four children, Gracyn, Hunter, Tanner, and Logan, excel on the field is almost just as rewarding, if not more, than celebrating the victories of seeing his clients overcome obstacles and build wealth. Spending weekends boating on the lake, hiking mountain trails, and fishing with his family are the moments Jeff cherishes most. It’s this grounded perspective that reveals the true meaning of wealth for Jeff: not just numbers on a page, but the freedom to create experiences that enrich your life and the lives of those you love. When you choose the Dobyns McMillin Wealth Team, you choose more than financial expertise. You choose a partner who champions your dreams, celebrates your victories, and walks besides you on the path to achieving your unique goals.

**Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER TM, 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.