If you have a 401(k) plan offered through your employer, you’re probably well aware of the benefits of using it to save for retirement. Contributing to a 401(k) plan is usually a no-brainer, especially if your employer matches some of your contributions.
But even if you already have a 401(k) plan, you may still want to consider opening an Individual Retirement Account (IRA) to help boost your retirement savings. Here are three reasons why.
Per IRS rules, 401(k) plans are subject to annual contribution limits. The standard annual contribution limit to a 401(k) plan is $23,500 for 2025 ($23,000 for 2024). But individuals who are 50 or older could make an additional catch-up contribution of up to $7,500.
In other words, if you’re 50 or older, you could contribute up to a total of $31,000 ($23,500 + $7,500) to your 401(k) plan in 2025. For more information on catch-up contributions, visit IRS.gov.
Important: Under SECURE Act 2.0, starting in 2025, 401(k) plan participants age 60 to 63 will have a higher catch-up contribution limit. The higher catch-up contribution limit for 2025 is $11,250 (instead of $7,500). This means that those age 60 to 63 could contribute up to a total of $34,750 to their 401(k) in 2025. See the IRS press release here for more information.
If you’ve maxed out your annual 401(k) contributions but want to set aside more money for retirement, setting up an IRA in addition to your 401(k) may be a good idea.
For 2024 and 2025, the standard annual contribution limit for an IRA is $7,000. If you’re 50 or older, you can make an additional catch-up contribution of up to $1,000. This means you could make a total contribution of up to $8,000 ($7,000 + $1,000).
Good to know: IRS contribution rules and limits are subject to change. Always visit the IRS website or consult a tax professional for the most up-to-date information.
Many 401(k) plans will charge fees for managing your money. To get a better sense of how much you’re paying in fees, check your 401(k) plan details from your provider.
Be sure to look at the plan’s administration fees, investment fees, and individual service fees, which you can find on your 401(k) statement or prospectus (for participant-directed individual account plans you should receive statements quarterly and for all other individual account plans you should receive statements on an annual basis). You can also contact your benefits or HR manager who may be able to assist.
Generally speaking, you could expect to pay less in fees for an IRA compared to a 401(k). IRAs also typically have a wider variety of investment options for you to choose from compared to 401(k) plans.
More choices could help you further diversify your portfolio. If you have questions about your IRA investment options or fees, don’t hesitate to get in touch with a financial advisor for help.
Retirement accounts are taxed differently, and how they’re taxed could impact your income in retirement. 401(k)s and traditional IRAs allow you to contribute pre-tax dollars now, but your withdrawals in retirement are taxed.
If you’re eligible to contribute to a Roth IRA, your contributions will be taxed now, but your withdrawals in retirement will be tax-free once certain conditions are met. For details on eligibility rules, visit the IRS website.
When you are taking distributions in retirement, you might appreciate having both types of accounts to tap.
Saving for retirement is a long game and there’s no one-size-fits-all strategy: How you contribute and which accounts you use will depend on your retirement goals and financial situation. Generally, adding an IRA to your 401(k) can help you maximize your retirement savings. A financial advisor can offer personalized guidance if you have questions.
This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation. This article was prepared by and approved by Marcus by Goldman Sachs® but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, or any of its affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, nor any of its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
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