| Contribution limit | 2018: $18,500 for those under age 50; $24,500 for those age 50 and above.
2019: $19,000 for those under age 50; $25,000 for those age 50 and above. | 2018: $5,500 as a combined IRA limit; $6,500 for those age 50 and above.
2019: $6,000 as a combined IRA limit; $7,000 for those age 50 and above. |
| Key pros | Employer match, if offered.
High annual contribution limit.
Contributions lower taxable income in the year they are made.
Eligibility is not limited by income.
Funds in a 401(k) may be less expensive than identical fund purchased outside of 401(k).
| Large investment selection.
If deductible, contributions lower taxable income in the year they are made.
| Large investment selection.
Qualified withdrawals in retirement are tax-free.
Contributions can be withdrawn at any time.
No required minimum distributions in retirement. |
| Key cons | No control over plan and investment costs.
Limited investment selection.
Distributions in retirement are taxed as ordinary income, unless a Roth 401(k).
Required minimum distributions beginning at age 70 1/2.
| Contribution limits are lower than a 401(k).
Deduction phased out at higher incomes if you or your spouse are covered by a workplace retirement account.
Distributions in retirement are taxed as ordinary income.
Required minimum distributions beginning at age 70 1/2.
| Contribution limits are lower than a 401(k).
No immediate tax benefit for contributing.
Ability to contribute is phased out at higher incomes. |
| Bottom line | Fund a 401(k) first if your company offers matching dollars. | Fund an IRA first if your 401(k) doesn't offer a match. If you max out the IRA, begin contributions to your 401(k). Which IRA is best for you? This guide will tell you how to choose. |
