Account Types...
Employer sponsored retirement plans, such as 401(k)s, are not investments, but accounts that hold investments, like bank accounts hold cash. Retirement accounts get special tax treatment, and both traditional and Roth retirement accounts can be opened by individuals or employers. Retirement accounts opened by individuals are called IRAs, and accounts opened by employers have names such as 401(k) or 403(b). Though individual and employer accounts are essentially the same when it comes to taxes, there are some important differences.

No Limit
One significant difference is that employer plans are typically limited in the types of investments available. Individual accounts usually have a wider range of investment products available. Another important difference is that individuals are typically responsible for selecting investments on their own in employer accounts. Individual retirement accounts allow investors to work with a professional advisor who can provide guidance or manage the account on their behalf.

Max Out 
The advantages of individual accounts can make IRAs a good option for retirement investors, even if they have an employer plan available. However, there are times when using an employer account in addition to an IRA may be a good choice. Employer plans have higher yearly contribution limits than IRAs. If an investor needs to invest more than the limits of an IRA, it may be a good choice for them to first contribute up to the limit in an IRA, then contribute the rest to their employer account. Another reason to use an employer account may be if a match is available. Some employers offer contribution matches up to a certain percent of an employee's wages. Matches are basically an instant 100% return, and it can be a good idea to take full advantage of a match. After contributing up to the matched amount in an employer account, an investor could then contribute the rest of their investable money to an IRA. If they still had money to invest after maxing out their IRA, they could then put the rest in their employer account, making use of the higher limits.

Individual...
However, for many Americans, the yearly contribution limits on IRAs are not lower than the amount they need to invest. Also, contribution matches are not offered by all employers. So, for many, individual retirement accounts, IRAs, can be a good option for funding the future, and filling any possible income gaps that won't be provided by Social Security or pensions.

July 21, 2021