In 2011, regular IRA accounts allowed only $5,000 maximum contribution, while 401K accounts allowed up to $16,500. Why is there such a disparity? Why do tax advantages favor employees of large employers that can afford 401K programs?

  • because those who don't work for an employer with benefits will die anyway because they don't have a decent health insurance, so who cares about them peasants... [me being sarcastic, would love to know the real reason why though]
    – littleadv
    Jan 14, 2012 at 4:18
  • These accounts were authorized by congress, they, not the IRS makes these convoluted rules. Their histories are separate but the rules for one interact with the other. It is what it is due to its history. I don't know if you'll find a decent answer comparing the two types of accounts. Jan 14, 2012 at 5:33
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    You're asking the wrong question here. If instead you ask "Why should there be any similarity in limits between two different programs put in place by different Congresses for different reasons at different times?", you'll struggle to get any answers, which should then answer the question you asked.
    – Mike Scott
    Jan 14, 2012 at 7:26
  • 3
    Boulding's Backward Basis: "Things are the way they are because they got that way." - Gerald Weinberg Jan 14, 2012 at 13:16
  • @ChrisW.Rea This thread is on the first page of results for "Boulding's Backward Basis"
    – stannius
    Jun 25, 2015 at 16:06

3 Answers 3


The 401k was not written with the specific intent of enabling retirement savings.

Why do tax advantages favor employees of large employers...

It seems that large businesses have been more effective at influencing legislators despite that there are more people are employed by small than large businesses.


IRAs were invented to help individuals save for retirement.

401(k)s were invented to help corporations provide more compensation to highly valued employees.


The investments offered in 401K are usually limited to a selection of mutual funds offered by a 401K provider. The 401K providers and the mutual funds charge fees. The mutual fund industry has a lobbying group that will push for increased 401K contributions to direct money into their mutual funds to collect fees. The top 401 K provider in 2005 was fidelity. It managed $337 billion in 401Ks of which $334 billion was directed into mutual funds.

Although I would have to use some of the same providers to open an IRA, I would not have to invest in the providers' mutual funds when I open an IRA. I can buy a stock and hold onto it for 10, 20, 50 years inside of my IRA. Thus, the only fee the investment company would collect from me would be from when I purchased the stock and when I sold the stock. Not nearly as profitable as mutual fund fees.

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    I can't find any factual basis to your claims. As it has been mentioned numerously on this site, 401k fees in many cases are significantly lower than comparable investments costs outside of a 401k account. Until very recently, IRA accounts charged value-based fees as well (and some still do). As usual with you, unrelated rants with little, if any, factual basis.
    – littleadv
    Nov 27, 2012 at 22:23

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