Which of the following is a key difference between an IRA and a 401(k)?

• A. 401(k) accounts have lower annual contribution limits than IRAs.
• B. Only IRAs allow for employer matching contributions.
• C. IRAs are only available to self-employed individuals.
• D. A 401(k) is typically offered by employers, while an IRA is opened individually.

Answer: (D)

Verified step by step guidance

1. Understand the key concepts of an IRA (Individual Retirement Account) and a 401(k) plan. An IRA is a retirement savings account that individuals can open independently, while a 401(k) is typically offered by employers as part of a workplace retirement plan.
2. Review the contribution limits for both accounts. Generally, 401(k) accounts have higher annual contribution limits compared to IRAs, making the statement about lower limits incorrect.
3. Examine the employer matching contributions. Only 401(k) plans allow for employer matching contributions, which is a benefit provided by employers to encourage saving. IRAs do not include this feature.
4. Clarify the eligibility criteria for IRAs. IRAs are not limited to self-employed individuals; they are available to anyone with earned income, making the statement about self-employment incorrect.
5. Conclude that the key difference is that a 401(k) is typically offered by employers, while an IRA is opened individually. This aligns with the correct answer provided in the problem.