Differences between a 401(k) retirement plan and an individual retirement account include eligibility for participation, maximum contributions allowed and investment options, according to Investopedia. Differences in eligibility and tax treatment also exist between the two types of IRA accounts, traditional and Roth, notes U.S. News & World Report.
A 401(k) plan is a qualified, employer-sponsored retirement plan that is available to eligible employees of employers who choose to offer a plan as part of a benefits package, according to U.S. News & World Report. In contrast, IRAs have no connection to an employer, and anyone under the age of 70 1/2 is eligible to open a traditional IRA and make contributions. To contribute to a Roth IRA, individuals must have an adjusted gross income below the specified annual limit.
The Internal Revenue Service places maximum limits on the annual contributions an individual can make to both 401(k) and IRA plans, notes Investopedia. For 401(k) accounts, the limit in 2014 was up to $17,500 for persons under 50 years of age, with an additional $5,500 allowed for investors 50 years and older. For either type of IRA, the total maximum contribution to all IRAs was $5,500 for account holders under 50, with an additional $1,000 allowed for those 50 and older.
Pre-tax money funds a 401(k), and the individual only pays tax on earnings upon withdrawal during retirement, explains Investopedia. Individuals do not pay tax on Roth IRA contributions upon withdrawal.