401(k) vs. IRAs


Author: Sean Cartin

When saving for retirement, most investors think of two options immediately: 401(k)s and IRAs. But not everyone knows the differences between them, and so making a decision can often be so complex that you don't make one! So here's a very brief breakdown of the pros and cons of these two retirement vehicles.

401(k) pros

401(k)s are often a good option for those looking to maximize what they can defer into a retirement plan. If contributing the max $18,000 proves difficult from a lifestyle standpoint, you may still want to allocate the amount up to the company match, if your company provides a matching benefit. If that is an option available and you elect to maximize your employers 401(k) matching offer, you could possibly double your contribution.

401(k) Cons

A 401(k) may not make sense if:

  1. Someone thinks he/she will change jobs often (thus potentially eliminating the benefit of the employer match due to vesting schedules, if employer match is available)
  2. Someone is given pause by his/her provider’s 401(k) fees
  3. Contributing more than $5,500 seems daunting

Roth-IRA Pros

For Gen Xers and Millennials who plan to stick with a company that does not offer a plan match, a Roth IRA (after-tax contributions) could be useful if they do not plan to contribute more than $5,500. Roth IRAs provide flexibility in that you can take them wherever you go, plus you can use your contributions to a Roth for certain exceptions like a home purchase or school without the 10% early withdrawal penalty. There’s also the added bonus that if the Roth has been open for 5 years, the distributions you take in retirement (and over 59.5 years) are tax free!

Roth-IRA Cons

The most prominent downsides to Roth-IRAs are:

  1. It's after-tax money. So if you're making a high salary and taking a big hit, you might want to steer clear.
  2. $5,500 capped contributions. If you're behind on saving for retirement and need to add money to your retirement savings, this also might not be the best option.


If retirement planning and maximizing the contribution maximum are your primary goals, 401(k)s can be a good option because the max contribution is much higher and, additionally, your employer may offer a match. The rule of thumb for Roth-IRAs are that they can be a good option  for younger investors.  who may only be able to contribute up to the $5,500 maximum.

But most importantly, retirement planning is about your situation so it's always a good idea to speak with your wealth advisor about your specific circumstances before making any decisions. At EP Wealth Advisors, we're always happy to help.

Check out our retirement planning process!



401(k)s and Roth IRAs are not the only retirement account options available to investors. Many unique factors that are specific to the individual needs and goals of an investor should be considered prior to selecting a retirement account. There is no guarantee that a Roth IRA or 401(k) will be a suitable option for your retirement needs. Other options exist that may be better suited to your individual needs. 401(k)s and employer match options are not offered by all employers. Please consult your employer regarding their respective retirement plan options and benefits. Please consult a tax professional before implementing a retirement account.  




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