Comic Strips

As a more general PSA: Even without matching, 401ks are still usually (but not always) superior to IRAs. The pros/cons work out differently by individual, so I'll summarize the major differences (This comparison applies to "traditional", non-ROTH accounts[^1]):

• 401ks obviously require a job that offers them. Sometimes, IRAs are better by virtue of being the only option!
• Only 401k savings are protected from creditors (i.e.: bankruptcy) under the ERISA act. That's a big deal when making long-term financial plans!
• IRAs have a substantially lower maximum annual limit for deductible contributions (For young unmarried individuals in 2023: $6,500 vs. $22,500). If you want to contribute more than $6,500 every year, you're going to need a 401k.
• The IRA deductible contribution limit is even lower if you're earning >$73,000 in annual income. In fact, those earning >$83,000, can't deduct any IRA contributions at all[^2].
• Only 401ks are paid before federal tax withholding. In other words; with an IRA, you're paying the cost of letting the government borrow more of your income between annual tax returns relative to a 401k.
• Under a 401k, your employer chooses the institution. This lack of choice generally translates into a worse investor experience (e.g.: higher fees, fewer options, worse support). IRAs are obviously superior in this regard![^3]
• You can combine a 401k and an IRA to bypass (Roth) contribution limits via the so-called "Mega-Backdoor Roth" (... you can't make this shit up). This is great if you have so much income that you've already maxed out your main 401k's contributions and still want to make even more (Roth-only) retirement contributions. If you're already this rich, you should probably be learning about this from your accountant and not the internet...

tl;dr: If you make more than $70,000ish or just want to save really aggressively, 401ks are usually superior. IRAs are mostly useful if you don't have the option of a 401k or prefer an IRA's flexibility over a 401k's higher contribution limit.

[^1]: What's a Roth retirement account? It's a type of IRA/401k where contributions are not tax-deductible. Why would anyone want to give up those sweet tax deductions, though? Because in exchange your future retired self doesn't have to deal with paying taxes when they take that money back out[^4]. This is good for two groups of people: those with low taxable income (<$40,000) & those with excessively high spare income (see "Mega-Backdoor Roth" above). Another side-benefit is that you can withdraw your Roth contributions early with fewer penalties compared to a traditional retirement account (though I personally don't think it's a good idea to opt for a Roth for the "just in case" factor [^5])

[^2]: People who earn less than this can actually make deductible contributions to both an IRA and a 401k, but that's only useful if you're already hitting the $22,500 401k contribution limit... which is kind of hard to manage even near the upper cutoff of $83,000!

[^3]: It's worth mentioning, however, that inactive 401ks (i.e.: 401ks from employers who no longer pay you) can also be freely transferred to any institution of your choosing via a "rollover" 401k account.

[^4]: FYI: with normal retirement accounts, they're actually "tax deferred" rather than "tax free". Basically, you still eventually get taxed when you take money out. Despite this, saving with a traditional retirement account is almost always worth it because putting in 20+% more money per dollar earned is a massive difference growth-wise.

[^5]: What's my beef with using a Roth account as a hybrid retirement/rainy-day account? Well... it's just not good enough at it to justify the opportunity cost of going Roth vs. Traditional. Keep in mind that usually only your original contributions can be taken out early -- any growth is hands-off (before you retire) unless you pay a big penalty. At that point, it's generally smarter to put your rainy-day savings into a high-interest savings account where you'll have full liquidity and immediate access to the accumulated interest. If you're really worried that you'll need more money than that... consider that you could just declare bankruptcy if things go so hopelessly ass-up that digging out becomes impossible -- your 401k is protected!