If you're already contributing to your 401(k), you may think you've checked off the retirement-saving box. But you can keep building your nest egg — and protecting it — by adding an IRA.
You gain exposure to different tax advantages and withdrawal options, and diversify your investments, which is a smart bulwark against market downturns.
What's the difference between a 401(k) and IRA?
A 401(k) and an IRA are both tax-advantaged retirement plans funded by contributions from your paycheck. But there are significant differences in how they operate.
Set-up and management: Your employer sponsors a 401(k) plan and chooses a limited number of investment options, while you open an IRA on your own and can choose from a broader selection of investments, including stocks, bonds and ETFs. Charles Schwab and Fidelity are two of our top choices for IRAs.
Charles Schwab
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees
Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus
None
Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™, Schwab Organization Account and Schwab Trading Powered by Ameritrade™
Investment options
Stocks, bonds, mutual funds, CDs and ETFs
Educational resources
Extensive retirement planning tools
Terms apply.
Employer contibutions: A majority of employers will match some or all of your 401(k) contributions. Except for SIMPLE and SEP IRAs, there's no employer match with an IRA.
Tax advantages: Contributions to your 401(k) are made with pre-tax dollars, so your taxable income for that year is lower and your money can grow untaxed. IRAs are funded with after-tax contributions, which is helpful if you expect to be in a higher tax bracket when you retire.
Contribution limits. The contribution limits for a 401(k) are considerably higher. For the 2026 tax year, workers can contribute up to $24,500 to their 401(k) and $7,500 to a traditional or Roth IRA.
Withdrawals: You can make qualified, penalty-free withdrawals from either a 401(k) or an IRA after age 59½. Before then, you'll be subject to income taxes and a 10% penalty, although there are some exceptions, usually for financial hardship.
Borrowing options. Most plans allow you to take a loan from your 401(k), but you can't borrow from an IRA.
Income requirements. There is no salary cap with a 401(k), while your modified adjusted gross income (MAGI) dictates how much of your traditional IRA contributions can be deducted from your taxable income annually and whether you are eligible for a Roth IRA.
Fiduciary duty. Your employer has a legal obligation to review its 401(k) fund options to make sure they're the best options for workers.
Portability: Because your 401(k) is tied to your employer, you can no longer make contributions once you leave your job. (You can roll over your account to a new plan with a new employer, however.) An IRA can move with you as you change jobs and you can keep contributing as long as you are earning income.
Offers in this section are from affiliate partners and selected based on a combination of engagement, product relevance, compensation, and consistent availability.
Minimum initial purchase requirement of $10,000
Minimum account balance of $25,000
Account set-up fee of $50. Storage fees of $100 or $15, depending on storage type. Annual account administration fee of $125. Terms apply.
Minimum purchase requirement of $10,000
Minimum account balance of $10,000
Annual IRA fee of $75 for accounts valued at $100,000 or less, $125 for accounts valued at $100,001 or more
Storage fee varies with the depository but typically is a flat $100 annual storage fee in most cases
Why you should contribute to both a 401(k) and IRA
If you can afford to fund multiple accounts, having both a 401(k) and IRA will help you maximize your total annual savings, gain access to a greater diversity of assets and enjoy more leeway with early withdrawals.
If you open a Roth IRA, you can also enjoy diversifying tax advantages, since they're made with after-tax dollars and qualified withdrawals in retirement are generally 100% tax-free,
"You don't know what tax bracket you'll be in the future," Mindy Yu, director of investing at Betterment, told CNBC Select. "Having access to both a 401(k) and Roth IRA is a way of spreading your tax liability and tax diversification."
FAQs
What's the difference between a 401(k) and an IRA?
A 401(k) is an employer-sponsored plan with high contribution limits and potential matching, while an IRA is an individual account with lower limits and more investment flexibility.
What is a Roth IRA?
Introduced in the late 1990s, the Roth IRA is a tax-advantaged retirement plan that, unlike a traditional IRA< is funded with after-tax contributions. That means your money grows tax free and you can make tax-free withdrawals in retirement. People who expect to be in a higher tax bracket when they start making qualified withdrawals tend to favor Roth IRAs.
Can you roll a 401(k) into a Roth IRA?
Rollovers from 401(k) accounts to IRAs are extremely common, especially among workers taking a new job or retiring. There are drawbacks, however, such as losing creditor protections, paying higher fees and losing access to certain investment types, like guaranteed and stable value funds.
In addition, your employer has a fiduciary duty to curate its 401(k) to best suit workers. A financial planner working with you on an IRA is not legally required to put your best interests first.
Can my IRA lose money?
Like any product based on market activity, an IRA will lose money if your investments fail to perform as expected. The account balance can drop to zero, but not below, because brokerages don't allow overdrafts. You cannot lose more than you invested in a standard, non-leveraged IRA.
Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed financial decisions. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of debt settlement products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.
