Back to News

Personal IRA Vs. Employer-Sponsored Retirement Plans

Cypress Wealth Services

August 2021

If you want to save for retirement, you have a plethora of options for how to build up a nest egg. The problem is finding the right account for your needs. Maximizing investment opportunities available to you is going to allow you to build wealth faster and ultimately reach the goals you have for retirement. The two most common retirement savings vehicles used for these purposes are the Individual Retirement Account (IRA) and Employer-Sponsored Retirement Plans (ESRPs). Let’s go through 3 major differences between these accounts so you can make the best choice for your situation.

1. Contribution Limits

One key contrast between a personal IRA and an ESRP is the contribution limit. For an IRA, you can contribute up to $6,000 per year if you are under the age of 50, or $7,000 per year if you are age 50 or older. (*1)

Alternatively, the max contribution per year to ESRPs is $19,500, or $26,000 if you are over the age of 50. This limit is how much you as an individual can put into these accounts. Anything your employer chooses to match or contribute does not count toward that limit.

Although it is advantageous to make sure you receive any match your company offers through an ESRP and max out those accounts each year, anyone with a taxable income can contribute to an IRA as well. This increases your total contribution limit to $25,500, or $33,000 for those 50 and older, each year when you max out both an IRA and an ESRP.

2. Investment Options

IRAs are accounts you open and can control, which means you have quite a few more stock options, mutual funds, index funds, and bonds to choose from compared to what your ESRP chooses to offer. Employers select a certain number of investment options to offer and that is what you get, unlike being able to have more flexibility with where your money is invested with an IRA.

Choosing investment options using an IRA and contributing the full $6,000 per year to that account before making maximum contributions to your ESRP could be a wise strategy, depending on how advantageous the employer-selected options are for your financial situation.

3. Tax Implications

Most of us like to save money on taxes wherever possible, so it’s important to understand the different tax implications of ESRPs and IRAs, especially since income is a factor in determining how much of a tax benefit you could receive.

With traditional ESRPs, you can claim a deduction on the full amount of your contribution, no matter what your annual income or tax filing status is currently. The difference between contributing to traditional versus a Roth account is that you are using pre-tax dollars for traditional contributions and post-tax dollars if you contribute to a Roth ESRP. Contributions using pre-tax dollars allow you to claim the deduction now and be taxed on your withdrawals later. Alternatively, if you contribute to a Roth account using post-tax dollars, all growth and contributions grow tax-free, but you are not able to claim a tax deduction.

If you are covered by an ESRP and make more than $76,000 as a single filer or more than $125,000 as a joint filer, you will not be able to claim any deduction for contributing to a traditional IRA. (*2)  If you don’t have the option to contribute to an ESRP, you can claim a deduction on your contributions and there are few limitations on income, which you can see here. (*3)

Are You Taking Advantage of All Your Retirement Options?

It’s important to know your retirement account opportunities and maximum contribution limits and strategize appropriately, as they have a long-term effect on growing your portfolio and your ability to reach financial goals to live a lifestyle you can enjoy.

At Cypress Wealth Services, we specialize in handling the many aspects of retirement planning. If you need help choosing the best way to grow your wealth, we are here for you. Get started by contacting one of our offices today.


About Cypress Wealth Services

Cypress Wealth Services is an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. Cypress Wealth Services comprises professionals with diverse backgrounds and extensive experience and qualifications. Cypress Wealth Services is uniquely qualified to serve a broad range of client needs, and their experience and expertise act as a foundation for their client service process. The firm uses The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With financial advisors in Palm Desert, CA, Tustin, CA, and Anchorage, AK, the firm serves clients across the country in Wealth Management Services, Fiduciary Services, 401(k) Design and Management, Investment Reporting Services, Financial and Retirement Planning, and more. For more information, visit or call 760.834.7250.