What is the difference between a 401(k) and an IRA?

A 401(k) is an employer-sponsored retirement plan, while an IRA is an individual retirement account you open independently, though both offer tax advantages.

Can anyone open an IRA?

In the US, anyone with earned income (or whose spouse has earned income) can open an IRA, though contribution limits and tax deductibility may depend on income and other factors.

What does 'IRA' stand for?

IRA stands for Individual Retirement Account (or sometimes Individual Retirement Arrangement).

Is an IRA the same as a pension?

Not exactly. A traditional pension (defined benefit plan) promises a specific payment in retirement. An IRA is a defined contribution plan where the final value depends on your contributions and investment performance.

individual retirement account

Specialized

UK/ˌɪn.dɪˌvɪdʒ.u.əl rɪˈtaɪə.mənt əˈkaʊnt/US/ˌɪn.dəˌvɪdʒ.u.əl rɪˈtaɪr.mənt əˈkaʊnt/

Formal, Financial/Technical

My Flashcards

Definition

Meaning

A personal, long-term savings account for retirement in the United States, with tax advantages.

A class of investment vehicles designed to help individuals save for retirement, with specific rules governing contributions, withdrawals, and tax treatment.

Linguistics

Semantic Notes

Always used as a noun phrase. In everyday speech, it is almost exclusively referred to by its acronym 'IRA'.

Dialectal Variation

British vs American Usage

Differences

This is a US-specific financial product and term. The UK has conceptually similar products (e.g., Individual Savings Account - ISA, Self-Invested Personal Pension - SIPP), but 'individual retirement account' is not used.

Connotations

In US contexts: financial planning, security, tax strategy. In UK contexts, the term itself would be recognized only as a specific US financial term.

Frequency

High frequency in US financial, business, and personal planning contexts. Very low to zero frequency in general UK English.

Vocabulary

Collocations

strong

open ancontribute totraditionalRothroll over intowithdraw frommax out your

medium

tax-advantagedretirement savingsinvestment optionsannual contribution limit

weak

manage anfund yourretirement planfinancial advisor

Grammar

Valency Patterns

[Person/Institution] opened an individual retirement account for [Beneficiary].[Person] contributes [Amount] to their individual retirement account.The funds were transferred into a new individual retirement account.

Vocabulary

Synonyms

Strong

pension plan (in specific, personal contexts)retirement savings plan

Neutral

IRAretirement account

Weak

savings account (broader, less precise)nest egg (informal, figurative)

Vocabulary

Antonyms

taxable accountchecking accountshort-term investment

Phrases

Idioms & Phrases

“It's never too early to start funding your IRA.”

Usage

Context Usage

Business

Discussed in HR benefits packages, financial advising, and corporate retirement planning seminars.

Academic

Studied in economics, finance, and public policy courses relating to pension systems and tax expenditures.

Everyday

Used in personal finance conversations about saving for the future, often shortened to 'IRA'.

Technical

Defined by specific sections of the US Internal Revenue Code (e.g., 408); types include Traditional IRA, Roth IRA, SEP IRA, each with distinct rules.

Examples

By Part of Speech

verb

British English

(Not applicable as a verb in this context)

American English

(Not applicable as a verb in this context)

adjective

British English

(Not commonly used as an adjective; attributive use is 'IRA')

American English

She reviewed her IRA statement.
They discussed IRA contribution strategies.

Examples

By CEFR Level

He has a savings account for his future.

An individual retirement account helps Americans save money for when they stop working.

To reduce her taxable income this year, she decided to contribute the maximum amount to her traditional individual retirement account.

The comparative analysis of the Roth and Traditional IRA structures reveals significant implications for long-term tax liability depending on one's income trajectory.

Learning

Memory Aids

Mnemonic

Imagine a person (INDIVIDUAL) leaving work (RETIREMENT) and walking up to a bank teller to check their special savings (ACCOUNT) for that future day.

Conceptual Metaphor

A CONTAINER FOR FUTURE SECURITY (The account 'holds' money that is 'for' a future state of rest/leisure).

Watch out

Common Pitfalls

Translation Traps (for Russian speakers)

Avoid direct calque like 'индивидуальный пенсионный счёт' as it refers to a specific US system. Use 'IRA' or describe as 'американский пенсионный счёт с налоговыми льготами'.
Do not confuse with the Russian 'индивидуальный инвестиционный счёт' (ИИС), which is a different product.

Common Mistakes

Using 'IRA' to refer to non-US retirement products.
Saying 'individual retirement account' in full in casual conversation instead of 'IRA'.
Confusing 'IRA' with '401(k)', which is an employer-sponsored plan.

Practice

Quiz

Fill in the gap

If you change jobs, you can often your old 401(k) into an individual retirement account to maintain the tax benefits.

Multiple Choice

What is the primary purpose of an individual retirement account (IRA)?

FAQ

Frequently Asked Questions

: A 401(k) is an employer-sponsored retirement plan, while an IRA is an individual retirement account you open independently, though both offer tax advantages.
: In the US, anyone with earned income (or whose spouse has earned income) can open an IRA, though contribution limits and tax deductibility may depend on income and other factors.
: IRA stands for Individual Retirement Account (or sometimes Individual Retirement Arrangement).
: Not exactly. A traditional pension (defined benefit plan) promises a specific payment in retirement. An IRA is a defined contribution plan where the final value depends on your contributions and investment performance.