Should you have an IRA even if you have a 401(k)?

A 401(k) is a great place to start saving for retirement especially if your employer offers matching contributions. But an IRA can take you a step further as you plan for the future.

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The main idea: If you have a 401(k), consider an IRA as well. You may find that an IRA can provide additional investment choices and potentially lower fees than your 401(k) plan. Plus, having both gives you tax diversification in retirement.

Know the essentials:

  • Your 401(k) is most often offered as a benefit from your employer although if you’re self-employed you can have an individual 401(k).
  • It’s common for employers to match your 401(k) contributions up to a percentage of your paycheck.
  • An IRA is an account you open yourself. At Betterment, we can help you open an IRA that meets your goals with our guided process.
  • There are two types of IRAs: Traditional and Roth. You contribute to a Traditional IRA using pre-tax income while a Roth IRA allows for contributions from post-tax income.

The big benefits: An IRA in addition to your 401(k) offers 3 potential benefits:

  • Additional investment choice: While Betterment offers the same diverse investment choices in our IRA accounts and 401(k) plans, IRAs typically have more investment options to choose from than an employer-sponsored 401(k). This can help diversify your portfolio using low-cost investments such as ETFs.
  • Access to lower-fee investments: The fees for 401(k) investments are dictated by your employer’s plan. Since you can open an IRA on your own and invest in a range of assets, you have a larger selection of low-fee options available to you. Compare your 401(k) plan fees to IRAs to see if adding an IRA may be right for you. If you have questions about 401(k) fees, ask your HR or benefits contact at your employer.
  • Tax diversification in retirement: Having a 401(k) and an IRA can provide tax diversification in retirement. You can contribute pre-tax dollars to your 401(k) and traditional IRA, paying tax on future withdrawals in retirement. Roth IRAs and Roth 401(k)s on the other hand allow you to contribute post-tax dollars—for example, money from your paycheck that you already paid taxes on. Your withdrawals, both on the earnings and the contributions, when you reach retirement age can be withdrawn tax-free.

Bonus benefit: Having a 401(k) and an IRA allows you to put more away for retirement in tax-friendly accounts.

  • In 2024, you can contribute up to $23,000 if under the age of 50 or $30,500 if you’re 50 or older.
  • For IRAs, you can contribute $7,000 ($8,000 if you're 50 or older), depending on your income level.

Pro tips:

  • Make sure you know how much your employer matches your 401(k) contributions. Contributions from your employer are essentially free money for your retirement savings.
  • If you are considering an IRA in addition to your 401(k), look at all fees, including management fees and expense ratios, when selecting investments.

We’re here to help you save: We believe saving for retirement should be easy and optimized for your needs—all to help you grow your money (and maybe even retire early). Are you ready to go beyond your 401(k) with an IRA today?

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