What's the real difference between a 401(k) and an IRA?

By Kaz · Published 28 September 2026 · How this site checks figures

Summary

A 401(k) is your employer's plan: the plan document sets the rules, the employer can add matching money, and you can put in far more each year. An IRA is an account you own at a financial institution, with a much lower contribution limit and no loans. Money can move from a 401(k) to an IRA, and back into a 401(k) if the plan accepts it.

Where the two accounts part ways

Who writes the rules. In a 401(k), the plan document decides the investment menu, whether loans are offered, how distributions are paid and whether the plan takes rollovers in. Change jobs and you get a different plan with different rules. An IRA is opened by you, and you pick the institution and the investments.

How much goes in. For 2026 the employee limit in a 401(k) is $24,500, against $7,500 across all your traditional and Roth IRAs. At 50 and older the totals are $32,500 and $8,600, and in a 401(k), people aged 60 through 63 get a higher catch-up of $11,250 instead of $8,000. Employer matching contributions come on top of that in a 401(k) whose plan document provides for them. The full set of 2026 limits is on the limits page.

Borrowing. A 401(k) that offers loans lets you borrow the lesser of 50% of your vested balance or $50,000, generally repaid within five years with payments at least quarterly. An IRA can't lend to its owner, and the IRS says borrowing from one ends its status as an IRA and makes the whole balance taxable income.

Getting money out while you work. Your elective deferrals in a 401(k) generally stay put until you leave the employer, reach 59½, have a financial hardship, become disabled or die, or the plan ends with no successor plan. An IRA has no such hold, so you can withdraw at any time; before age 59½ the IRS adds a 10% additional tax on early distributions unless an exception applies.

Which way money can move. Rolling a 401(k) into an IRA is the familiar direction. The IRS also lets you roll IRA money into a qualified plan such as a 401(k), "assuming the retirement plan has language allowing it." Roth IRA money is the exception and can only go to another Roth IRA.

What to do with an old 401(k) after you leave, weighing fees, the Rule of 55, employer stock, creditor protection and RMDs, is set out side by side in the four-choice table on the home page.

Sources

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