Here's Why You May Be More Successful Saving for Retirement in a 401(k) Than an IRA

If you're working hard to set aside money for retirement regularly, good for you. The more money you have for retirement, the more comfortable your senior years are likely to be.

Now, when saving for retirement, you may have the option to fund a workplace 401(k) plan or to save in an IRA. One benefit 401(k)s have over IRAs is that they allow you to set aside more money for retirement in a tax-advantaged manner.

In 2024, 401(k) plans max out at $23,000 for savers under 50 and $30,500 for those 50 and over. With an IRA, these limits currently stand at $7,000 and $8,000, respectively.

But that's not the only benefit 401(k) plans have over IRAs. And you may want to choose a 401(k) for your savings for one big reason.

When retirement contributions happen automatically

When you sign up for an IRA with a brokerage firm, you manage that account yourself. So it's on you to make sure it's funded.

But just as you might struggle to fund a regular savings account, so too might you struggle to fund an IRA because temptations to spend have the potential to get in the way of your contributions. You might tell yourself you'll put $200 into your IRA at the end of the month. But if friends beg you to join them for a concert midway through, bam -- there goes your $200 contribution.

On the other hand, the way 401(k) plans are funded is that you sign up with your employer and allocate a certain amount of your paycheck to retirement savings. Then, that sum is deducted from your pay automatically every month.

So if you elect a $200 monthly contribution, $200 will come out of your paycheck from the start. The result? You're more likely to stay on track.

And that's why participating in a 401(k) could lead to more success than an IRA. With a 401(k), you tend to get used to your smaller paycheck and stop missing the extra money. In some cases, you never even get used to the extra money, such as if you allocate your annual raise to your 401(k).

You can automate an IRA, too

A 401(k) might help you avoid straying from your retirement savings goals. But you can set yourself up for more success with an IRA by putting contributions on autopilot.

Many IRAs have the option to automate contributions just like a 401(k). You can't have your IRA funded out of your payroll since it's not an employer plan, but you can set up an automatic transfer from your checking account where you're putting money into your IRA off the bat each month, before you spend that money.

Many people who are in the process of saving for retirement don't even have access to a 401(k). So whether you've chosen an IRA for your savings or are stuck with one, your best bet is to automate the savings process.

Some IRAs may not have an automatic transfer feature, so find one that does. Otherwise, you might fall behind on your contributions and end up with a financial shortfall later in life.