IRAs Hold Trillions More Than 401(k) Plans, Yet People Hardly Save in Them

💡 IRAs hold trillions more than 401(k) plans, but individual contributions remain low.

The Federal Reserve reported that Individual Retirement Accounts (IRAs) hold trillions more than 401(k) plans, yet people hardly save in them. According to the Fed, as of 2023, IRAs held approximately $8.4 trillion in assets, compared to $7.4 trillion in 401(k) plans.

IRA Savings Gap

The primary reason for the disparity is that 401(k) plans are employer-sponsored, meaning employees must be enrolled in a plan to contribute. IRAs, on the other hand, are not employer-sponsored, and individuals can open and contribute to them independently. Self-directed IRAs, which allow individuals to invest in a variety of assets, including real estate and cryptocurrencies, are particularly popular.

401(k) Plan Limitations

One major limitation of 401(k) plans is that they often come with high fees and limited investment options. Additionally, many employers do not offer matching contributions, which can be a significant disincentive for employees to participate. Low-income earners, in particular, may find it difficult to contribute to 401(k) plans due to the high contribution limits and limited access to matching funds.

IRA Benefits

IRAs offer several benefits, including flexible contribution limits and a wider range of investment options. Individuals can also take tax-free withdrawals if they meet certain requirements, such as waiting until age 59 1/2 or using the funds for a first-time home purchase. Cryptocurrency IRAs, which allow individuals to invest in digital assets, have become increasingly popular in recent years.

What It Means for Investors