401(k) vs. IRA: Which Is Better for You?

Which of these tax-advantaged retirement accounts is the right one?

By Kailey Hagen – Updated Nov 24, 2025 at 2:18 PM EST

Key Points

401(k)s have higher contribution limits but limited investment choices compared to IRAs.
IRAs offer a wider range of investments and no fees on account opening or trades.
You can avoid early withdrawal penalties from IRAs for specific expenses like education.
The $23,760 Social Security bonus most retirees completely overlook ›

A 401(k) and an individual retirement account (IRA) are both tax-advantaged retirement accounts. While 401(k)s are typically only offered through employers (who often match employee contributions), individuals can open IRAs through any retail brokerage firm.

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An infographic comparing the similarities and differences between 401(k) and IRA retirement plans. — Image source: The Motley Fool.

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Data source: IRS.
Type of Contribution Limit	IRA	401(k)
Standard annual contribution limit	$7,000 (2025), $7,500 (2026)	$23,500 (2025), $24,500 (2026)
Catch-up contribution limit for those aged 50 to 59 or 64 or older	$1,000 (2025), $1,100 (2026)	$7,500 (2025), $8,000 (2026)
Super catch-up contribution for those aged 60 to 63	N/A	$11,250 (2025 and 2026)
Total limit for those 50 and older	$8,000 (2025), $8,600 (2026)	Aged 50 to 59, 64 or older: $31,000 (2025), $32,500 (2026); Aged 60 to 63: $34,750 (2025), $35,750 (2026)

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Data source: IRS.
Age of Employee	IRA	401(k) Combined Limit for 2025	401(k) Combined Limit for 2026
Younger than 50	N/A	$70,000	$72,000
50 to 59 or 64 or older	N/A	$77,500	$80,000
60 to 63	N/A	$81,250	$83,250

Unfortunately, when you leave your job, you are no longer allowed to contribute to your former employer's 401(k). Instead, you must make a choice between keeping your 401(k) account as is with that company, rolling it over to an IRA, or rolling it over to your new employer's 401(k) plan.

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Table source: IRS.
Reason for Withdrawal	401(k)	IRA
Birth or adoption expenses (up to $5,000 per child)	Yes	Yes
Becoming totally and permanently disabled	Yes	Yes
Experiencing economic loss as a result of a federally declared disaster (up to $22,000)	Yes	Yes
Being a victim of domestic abuse (up to the lesser of $10,000 or 50% of account balance)	Yes	Yes
Incurring qualified higher-education expenses	No	Yes
Taking a distribution for emergency personal expenses (up to the lesser of $1,000 or your vested account balance over $1,000, max once per calendar year)	Yes	Yes
Taking a distribution from a pension-linked emergency savings account	Yes	No
Taking a series of Substantially Equal Periodic Payments (SEPPs)	Yes	Yes
Purchasing a home for the first time (up to $10,000)	No	Yes
Incurring unreimbursed medical expenses exceeding 7.5% of income	Yes	Yes
Paying health insurance premiums while unemployed	No	Yes
Called to active duty as military reservist	Yes	Yes
Leaving your job during or after the calendar year you turn 55	Yes	No
Being certified as having a terminal illness	Yes	No

If you think you may leave your job in your mid-50s, then a 401(k) offers more flexibility due to the Rule of 55. However, if you want your retirement account to cover education expenses, insurance premiums in the event of job loss, or a portion of a home purchase, only an IRA provides these options penalty-free.

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How to Roll Over Your 401(k) to an IRA

Got 401(k)s from old jobs? Here's why you should collect them in an IRA.

Can I contribute to a 401k and IRA?

So can you have both? Yes, with some limitations.

Withdrawal Rules for 401(k) Plans

So you want to withdraw money from your 401(k). How do you do it, and is it a good idea?

Traditional 401(k) vs. Roth 401(k): What's Best for You?

Employers often offer both plans for you to choose from. Here's how to do it.

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About the Author

Kailey Hagen, CFP, is a contributing Motley Fool retirement analyst covering Social Security, Medicare, and retirement planning. Before The Motley Fool, Kailey was a research analyst for Reviews.com focusing on credit and banking products. She is a Certified Financial Planner® and holds a bachelor’s degree in English from the University of Wisconsin-Madison.

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