Created: April 18, 2022
Modified: September 9, 2022

Episode 68: Is It Better to Have a 401(k) or an IRA?

Today we’re here to answer your question, “Is It Better to Have a 401(k) or an IRA?”

If you’re asking this question, it means that you’ve saved to some degree for retirement, and we applaud that. We love people that save for retirement. Generally, a 401(k) is sponsored by an employer, whereas an IRA is individually set up by individuals. Most often when people leave an employer or ultimately retire, they roll over their retirement accounts from a 401(k) to an IRA account.

Reasons Why People May Keep Their 401(k)

Some of these reasons could be based on age. You’re probably familiar with some of the rules in regards to accessing money younger than 59 and 1/2, and that there are penalties if you do that. There are some times when you can access money in a 401(k) younger than 59 and 1/2 and avoid that penalty. In those circumstances, it’s better to leave that money in the 401(k) rather than roll it over to an IRA.

You’re also probably familiar that at age 72 people are generally required to start taking money out of retirement accounts, but in many plans, most plans. If you’re still working for the employer age 72 and beyond, you do not have to take money out of the 401(k). Not all, but most of them. You’d want to check with your employer’s plan.

There could be other reasons to leave money in a 401(k). Let’s say your 401(k) has such a unique investment inside of it, and it’s so good that you cannot access that type of investment outside of that 401(k). Well, maybe it makes sense to keep some or all of that money there, so you can continue to utilize that investment.

Maybe you have highly appreciated company stock inside of the 401(k), and there could be reasons to leave some of that money there, so you can potentially utilize some special tax benefits later on down the road.

Why Some People Consider an IRA Rollover

Now all these reasons being said, most people when they leave an employer or retire roll money from the 401(k) into a Roth IRA at that point. Normally, the reason why they do this is to have more control and flexibility over that money, and primarily to be able to access a wide array of investments.

Usually, 401(k)’s are rather limited in the options that they have available, whereas IRAs can be invested really in anything under the sun from an investment standpoint. People are usually rolling that money out to an IRA so they can get more choice from an investment standpoint, more choice in terms of safe types of options that might be available to them outside of the 401(k), and even risk-based types of options that are available to you outside of the 401(k).


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It’s important to take a look at your overall strategy for retirement before making these kinds of decisions. Be sure to seek professional guidance.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download your copy of our guide, “The Ultimate 401(k) Guide”.

P.P.S. Feel free to submit questions here for a chance to have them answered!

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