In several important ways, 401(k) plans are superior savings vehicles to IRAs:

Employer Matching - Most employers match part of their workers’ 401(k) contributions, resulting in potentially greater build-up of savings in a 401(k) plan than in an IRA.

Tax-Free Loans - Participants in 401(k) plans can take tax-free loans from their account, which is not permitted for IRAs. (Individuals have unlimited ability, subject to a 10 percent penalty tax, to withdraw funds from an IRA, while 401(k) withdrawals prior to retirement or change of employer typically require a demonstration of hardship.) Although extensive borrowing can negate the tax-deferred build-up of savings, the 401(k)-loan feature is highly prized by employees who want the security of knowing they have access to at least some of their plan savings.

Automatic Deduction - The payroll reduction feature of the 401(k) results in gradual forced saving of money that the employee does not have the chance to spend. Brokerage houses have automatic deposit programs for IRAs, but they are far less commonly used.

Higher Contribution Limits - The most obvious difference is that the annual maximum contribution to a 401(k) plan is more than three times the IRA limit for participants under age 50 and even more for those 50 and older.