What's the Difference Between a 401(k) and an IRA?

A 401(k) and an IRA are both tax-advantaged retirement accounts, but they work differently and have different rules around contributions and investments. A 401(k) is offered through your employer, and contributions come directly out of your paycheck before taxes, which lowers your taxable income right away. An IRA is an account you open on your own through a bank or brokerage, giving you more control over where your money is invested. The contribution limits are also different — in 2024, you can put up to $23,000 into a 401(k) but only $7,000 into an IRA. Many people use both: they contribute enough to their 401(k) to get any employer match, then add money to an IRA for more investment flexibility.