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

Get basic IRA information and better understand IRA vs. 401(k) savings opportunities

Ideally, you should begin saving for retirement as soon as you accept your first job. Most employers offer a retirement savings plan such as a 401(k), but if you’re just starting your career and haven't found a job that offers this type of benefits package yet, or you simply wish to ensure that you have enough savings for when you retire, you may need additional funds to enjoy a comfortable retirement. For this reason, many people use IRAs as part of their retirement savings plan. Learn more about and the differences between IRAs and 401(k)s in the article below.

What is an IRA?

An IRA is designed specifically for retirement savings. Unlike stock market investments or other savings accounts, when you open an IRA you may enjoy tax-free growth on your earnings. There are two basic types of IRAs, each with their own unique benefits. Learn more about them below:

Traditional IRAs

A Traditional IRA lets you save money on a tax-deferred basis. This means the money in your account can grow tax free until you reach retirement age. As long as you are earning money and are younger than 70 ½ years old, you can open a Traditional IRA.

Roth IRA

If you open a Roth IRA account, contributions are made after taxes, so you can't deduct them or receive immediate tax savings. One benefit of Roth IRAs is that unlike Traditional IRAs, Roth IRAs don't have an age cap of 70 ½ for contributions, nor do they have disbursement requirements.

  • You can open and contribute to a Roth IRA at any time, as long as your earned income falls below IRS thresholds. (These change annually, so check with the IRS to find the current levels.)
  • Since you paid taxes when you deposited the funds into the account, the tax savings will materialize when you withdraw the funds as you won't have to pay additional taxes on the interest acquired on your contributions. If you've had your Roth IRA for a minimum of five years and are at least 59 ½ years old, you can withdraw without penalty.
  • You can also choose not to withdraw your funds at all. This means you may be able to leave some or all of the money in your Roth IRA to pass on to your heirs. If you’re interested in this option, speak with a certified financial planner to learn more about the requirements and find out if it’s best for you and your family.

What is a 401(k)?

A 401(k) is a retirement savings plan sponsored by your employer in which the company matches your contributions up to a certain percentage of your salary. For example, your company may match any contributions you make up to five percent of your salary; to make the most of this savings program, you should at least contribute the maximum amount matched annually. Speak to your HR department to find out more about the 401(k) program offered by your company.

IRA vs. 401(k)-compare to see how they work together for you

Participating in your employer's 401(k) plan is an excellent way to start saving for retirement. However, remember saving for retirement isn’t a matter of IRA vs. 401(k) – opening an IRA can help you save even more and may confer a number of additional benefits. The chart below can help you compare the advantages of 401(k) plans, Traditional IRAs and Roth IRAs so you can learn how each benefits you.


  Traditional IRA Roth IRA 401(k)
Sponsored by employer     X
Contributions matched by employer     X
Contributions eligible for tax deductions X   X
Money taxed upon withdrawal X   X
Annual max contribution* $5,500 $5,500 $18,000
Annual max contributions after age 50* $6,500 $6,500 $24,000
Available outside of employer sponsorship X X  

Learn more about IRA basics and explore your retirement options

If you would like advice on developing a retirement savings plan or need more information about IRAs, speak with a customer service representative at Citizens Bank. We offer a range of retirement savings options, including Traditional and Roth IRAs, to help you build a nest egg for the years ahead. When you’re ready to open an IRA account, stop by your local branch or call us to get started.


*Subject to change based on IRS rules. Amounts accurate as of October 1, 2015.