Should You Fund Your 401(k) Beyond Your Employer Match, or Move Over to an IRA?

Should You Fund Your 401(k) Beyond Your Employer Match, or Move Over to an IRA? Many people contribute to their 401(k) plan to receive the full employer matching contribution. But what comes next? Should you continue funding your 401(k), or open an Individual Retirement Account (IRA) instead? Let’s find out.

Should You Fund Your 401(k) Beyond Your Employer Match, or Move Over to an IRA?
Should You Fund Your 401(k) Beyond Your Employer Match, or Move Over to an IRA?

Should You Fund Your 401(k) Beyond Your Employer Match, or Move Over to an IRA?

A 401(k) is an employer-sponsored retirement savings account that allows pre-tax contributions from your paycheck. Many employers also provide matching contributions up to a certain percentage of your salary, such as 50% of contributions up to 6%.

This essentially provides free money for retirement, which is why it is smart to contribute at least enough to maximize your employer match. Any additional contributions are voluntary. Some common 401(k) match policies include:

  • 50% match up to 6% of salary
  • $0.50 per dollar on first 6% of pay
  • 100% match on first 3-5% of pay

To optimize the match amount, contribute at least the minimum percentage to get the full match. If your employer matches 50% up to 6%, you would want to contribute at least 6% to claim the full 3% match.

Pros and Cons of Funding a 401(k) Beyond the Match


Tax-deferred growth potential: Investments grow tax-free until withdrawn in retirement.

High contribution limits: In 2023, you can contribute up to $22,500 as an employee, plus an $8,500 catch-up contribution if over age 50.

Potential to earn additional employer match dollars if you haven’t hit plan maximums.


Limited investment options: Most 401(k)s offer a subset of available funds and stocks.

Account fees may be higher than IRAs due to plan administration costs.

Early withdrawal penalties if accessed before age 59 ½, with certain exceptions.

Pros and Cons of Moving to an IRA After Receiving Full Employer Match


More investment choices: IRAs allow investment in stocks, bonds, mutual funds, ETFs.

Often lower account fees: IRA account fees from brokers average $15-$25 per year.

Penalty-free withdrawals: Can withdraw IRA contributions anytime without tax or penalty.


No further employer match potential as with 401(k).

Lower IRS contribution limits: $6,500 per year for IRA vs $22,500 for 401(k) in 2023. Those over 50 can contribute an extra $1,000 to IRAs.

Key Factors to Consider

When deciding whether to continue funding your 401(k) or open an IRA, key factors to weigh include:

  • Individual tax situation: Pre-tax 401(k) vs post-tax IRA options.
  • Investment options needed: Range of funds available in each account type.
  • Account fees: Compare total fee amounts.
  • Employer match policy: Do you still qualify for additional match dollars?
  • Withdrawal needs: When do you need access to the funds?

Running the numbers for your unique situation helps optimize the approach.

Additional Strategy Options

Beyond the choice of maxing out your 401(k) first or moving funds to an IRA, there are a few other options to consider:

  • Split contributions between both accounts up to the annual IRS limits
  • Do both – max out 401(k) match then fully fund an IRA as well
  • Shift funds from your 401(k) to an IRA after leaving an employer


There are good arguments on both sides of this debate. The ideal approach depends on your total income, tax situation, investment needs, employer match policy, and more.

For many people, a blended approach allows you to enjoy the benefits of both accounts. Get the “free money” from your full 401(k) match, then fund an IRA if you still have room in your budget and need more flexibility.

As always, involve a trusted financial advisor to determine the right path for your personal financial situation.

FAQs: Should You Fund Your 401(k) Beyond Your Employer Match or Move Over to an IRA?

What is a 401(k), and how does it work?

A 401(k) is a tax-advantaged retirement savings plan sponsored by employers. Employees contribute a portion of their pre-tax income, and these funds grow tax-deferred until withdrawal during retirement.

Why is contributing up to the employer match crucial?

Contributing up to the employer match is crucial because it maximizes benefits and takes advantage of free money offered by the employer. It’s a significant incentive to encourage retirement savings.

What are the benefits of funding a 401(k) beyond the employer match?

Funding beyond the match offers additional tax advantages, long-term growth potential through compound interest, and may impact employer contributions positively, showcasing commitment to long-term goals.

Are there limitations to continuing 401(k) contributions?

Yes, there are contribution limits, and exceeding them may have tax consequences. Additionally, some plans might have restrictions on investment choices.

What are the types of Individual Retirement Accounts (IRAs)?

There are two main types of IRAs: Traditional and Roth. Traditional IRAs offer tax-deductible contributions, while Roth IRAs provide tax-free withdrawals in retirement.

How do IRAs differ from 401(k) plans?

IRAs offer more flexibility and control over investment choices compared to 401(k) plans. They are individual accounts, not tied to an employer.

What are the advantages of switching to an IRA?

A: Advantages include diversification of investment options, control over fees, and potential tax advantages depending on the type of IRA.

How do I assess personal financial goals before moving to an IRA?

Evaluate short-term and long-term financial goals. Consider how the flexibility of an IRA aligns with these goals.

Should I examine employer benefits before making a decision?

Yes, understanding unique employer benefits associated with your current 401(k) plan is crucial. Some benefits may be plan-specific.

How do I make an informed decision between 401(k) and an IRA?

Consider key factors such as tax implications, contribution limits, and investment preferences. Utilize expert insights, real-life case studies, and consult with a financial advisor.

Can I contribute to both a 401(k) and an IRA?

Yes, in most cases, you can contribute to both a 401(k) and an IRA. However, income limits may affect your ability to deduct contributions to a Traditional IRA.

How do tax considerations differ between 401(k) and IRA?

401(k) contributions are tax-deductible, reducing current taxable income, while Traditional IRA contributions may be tax-deductible, and Roth IRA contributions are made with after-tax dollars.

How can I seek expert advice on this decision?

Consult with a financial advisor who can provide personalized advice based on your specific financial situation and goals.

What resources can I explore for further information?

Consider exploring IRS publications on 401(k) plans and Comparing Roth and Traditional IRAs. Vanguard’s Retirement Planning Tools are also a valuable resource.

How do I ensure my decision aligns with my unique circumstances?

Utilize the checklist provided in the article, summarizing key considerations. Seek professional advice and thoroughly assess how each option aligns with your financial goals and lifestyle.



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