A 401K is when your employer gives you as an employee a way to save for retirement, they may offer participation in a 401K plan, (the 401(k) plan became law in 1978 and is named after the subsection of the Internal Revenue Code that established it.)
You contribute money to your own account, and at times the employer may offer to match a percentage of your contribution. Contributions to 401(k) are made pretax. The money is deposited into various investments, as selected by the sponsor, and investment income compounds tax free. Withdrawals are taxed at the normal tax rate, as long as they’re made after age 59 ½. The funds are designed to meet your specific risk tolerance so that you only take on the amount of risk that you’re comfortable with.
As of 2019, participants can contribute up to $19,000 per year with an additional $6000 catch up contribution allowed for people aged 50 and over.
IRA accounts or an Individual Retirement Account, is a retirement savings account established by an individual or sometimes offered by employers to their employees. IRA accounts are held by custodians, such as banks or brokerages, that allows you, the account holder, to have many different assets within your IRA, including stocks, bonds, CDs, and even real estate. Contribution limits for IRAs are $6000 per year as of 2019, with an additional $1000 catch up contributions allowed for people 50 and over.
The benefit of an IRA is that your investment choices are much greater and almost unlimited.
The cost of each 401K or IRA do need to be considered, and will vary depending on the investment selection.