I might take a software contracting job, and the agency has a 401(k) plan, but just 0% matching.

But it seems a little bit weird: what does it mean, is it a way for us to put more money in than an IRA or Roth IRA?

IRA and Roth IRA also has a limit that, when our salary is more than some amount per year, we cannot put any money into an IRA or Roth IRA, so I think the 401(k) with no matching provides a way to put money in?

But overall I don't quite understand it: it feels somewhat strange to be limited to how much money we want to save for investment for the purpose of retirement. It is like, if I want save more money for the purpose of retirement, no, the rule mandates that you cannot do that. The rule sets up an amount and you cannot save more than that. (I can save money outside of IRA or Roth IRA or 401(k), but if I sell the stock of Bank of America and buy the stock of Citibank, and I need to immediately pay tax on any gain, and it totally defeats the purpose of saving for retirement).

  • 1
    There is no income limit for contributing to trad IRA, although you cannot deduct contributions if you (or spouse on joint return) is covered by an employer plan AND AGI (not just salary) exceeds a limit. There is a limit to contribute to Roth IRA, but if you don't have other trad IRA you can get around this by making a nondeductible contribution to trad IRA (always allowed) and immediately converting it to Roth (also always allowed); this is nicknamed 'backdoor Roth' and there are hundreds of Qs about it on Stack, as well as probably millions of other websites. Mar 28, 2021 at 3:12

2 Answers 2


No, a 401(k) plan without matching is not like an IRA.

Major differences are that you are entitled to contribute much more to the 401(k) plan than you can contribute to an IRA; whether it is wise to contribute more than the IRA limit to your 401(k) without matching is a different issue. Also, typically, 401(k) plans have administrative fees that are more than those charged by most IRAs, and the choice of investments is far more limited. To make matters worse, the limited choices are often mutual funds that you might not choose to invest in if you had freedom of choice as you do with your IRA investments. Finally, in case you have civil liabilities, your creditors can come after your IRA, but not your 401(k) assets.

You can save as much money as you wish and invest it in any way you like, for your retirement, or a round-the-world trip, or whatever; it is just that you are limited to what you can put into tax-deferred retirement accounts such as 401(k) plans and IRAs, or tax-free accounts such as the Roth component of a 401(k) plan (where offered) or Roth IRAs. Be aware that when you take out money from a Traditional 401(k) plan or IRA, it is all taxed as regular income, you don't get a break for the capital gains inside the tax-deferred account.

  • yup, if I save for retirement but that money cannot be tax deferred, then the incentive is for me to spend it instead. I guess one way around it is to put it into an index fund like QQQ or SPY and not touch it for 35 or 40 years Mar 26, 2021 at 14:53

It's not really limiting how much you can save - it's limiting the tax deferment that you get with a qualified retirement plan. The government doesn't to allow unlimited tax deferrals, since it still needs money now to operate (so your question is really a political one and not a financial one). It's a balance of encouraging savings without reducing its tax income too much.

You can save as much as you want for "retirement", but after a certain point, the immediate tax benefits go away and your limits are reduced to after-tax 401(k) contributions or non-tax-advangaged accounts. In both situations you use after-tax dollars but only pay tax on the gains when you withdraw them. Or, if your company allows in-service rollovers, you can roll your after-tax 401(k) to a Roth and let it grow tax-free.

if I sell the stock of Bank of America and buy the stock of Citibank, and I need to immediately pay tax on any gain, and it totally defeats the purpose of saving for retirement

I wouldn't say it "totally defeats" it. You just have to pay the tax now instead of when you withdraw it. If you had a $100 gain on your BoA stock and have a $200 gain on your Citi stock, you either pay tax of the $100 now and tax on the $200 at retirement, or pay tax on $300 at retirement. (you also pay tax on the initial cost at some point, but I'm just illustrating that you still pay tax on the gain either way). You might, however, pay different rates, since long-term capital gains in a non-retirement account are taxed at a lower rate than "income" from an IRA withdrawal (regardless of how long the money has been there).


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