Should I Open An IRA Or 401k?

Sep 20 · 2 min read

Ready to open an IRA and retire like a boss? Find the best IRA for you!

Key Takeaway: Choosing between an IRA or a 401(k) can be tough so we made an easy gameplan for you to follow, First and foremost, make sure to get your 401(k) employer match. You can’t pass up this free money! What you do next will depend on your personal situation.

Should I Open An IRA Or 401k?

When it comes to building your nest egg for retirement, there are two main accounts designed specifically to help you do so: an IRA and a 401(k). But which one is right for you?

IRA vs. 401(k): Which Account Should You Open?

When deciding on whether to open an IRA, 401(k), or both (yes you can do that), your focus should be on one question:

  1. Does my employer offer a 401(k) with an employer match?

If your employer offers a 401(k) plan with an employer match: At a minimum, you should fund your 401(k) up to the percentage that gets you the maximum match from your employer. For instance, if your job offers you a 401(k) match of 50 cents for every dollar you contribute up to 6% of your pay, you should at least put 6% of your pay into the 401(k). Doing so will get you the maximum match of 3%! This 3% of your income is FREE MONEY so don’t pass it up. After you make sure you are getting the maximum match, consider opening an IRA or increase how much money you are adding to your 401k.

  • Choose a Traditional IRA if you want to add non-taxed money to your retirement investments. This option could lower your taxable income for the year and allow your money to grow tax-free until you’re ready to withdraw it. Learn more about Traditional IRAs here .
  • Choose a Roth IRA if you want to add taxed income to your retirement investments. This option is best for those who believe they will be in a higher tax bracket in retirement. Because you pay taxes immediately on the money you add to your account, you won’t be required to pay them once you withdraw the money in retirement. Learn more about Roth IRAs here .
  • Continue to add to your 401(k) after you’ve maxed out your IRA contributions. Since IRAs have limits on how much money you can add to them each year, if you reach these limits, add more money to your 401(k). Although 401(k)s have limited options for investing in comparison to IRAs, they are a great way to save for retirement.

If your employer DOES NOT offer a 401(k) plan with an employer match: You should start with just a Traditional or Roth IRA. If you reach the contribution limit of your IRA, start funding that 401(k) through your job if you are still wanting to add money to a retirement account. If you’re not sure of which type of IRA you should open, find out which one is the best for you here.