Some 80 percent of Americans are worried that the country faces a retirement crisis but a growing preference for IRA retirement accounts might contribute to that crisis in the future.
Americans had $18.2 trillion invested in IRAs through March, while 401(k) balances totaled $13.8 trillion, according to the latest data from asset management trade association Investment Company Institute. That disparity may have dire consequences.
IRAs and 401(k)s operate under different regulations, and that difference can put investors’ dollars at risk, according to Boston College’s Center for Retirement Research. The most important difference for consumers? Fiduciary responsibility - a financial services firm’s responsibility to make investment choices always based on the investor’s best interest, not their own.
“The growing role of IRAs has resulted in a much less effective retirement system,” the center’s senior advisor, Alicia H. Munnell, wrote in a February column. “Without fiduciaries serving as a buffer between the participant and the market, investments will be suboptimal.”
Traditional and Roth IRAs - the two most popular types - aren’t bound to the same fiduciary rules as 401(k)s are.
While 401(k)s are regulated under the Employee Retirement Income Security Act (ERISA), which provides employee protections for workplace benefits, the Internal Revenue Service (IRS) notes that a mix of federal and state agencies regulate the companies offering IRAs.
“The employer and plan fiduciaries through ERISA have responsibilities around things like selecting and monitoring investments, controlling costs, and acting in the participant's best interest,” Trent Von Ahsen, managing partner at Cedar Point Capital Partners, told The Independent in an email.
“With an IRA, you typically don't have that same plan-level fiduciary oversight. You have much more freedom over what you own and where the account is held.”
That freedom puts a lot more responsibility on the investor. Without the same regulatory guardrails as 401(k)s, investors have to do their research on the quality of the firm running the IRA, the investments in the account, fees and the advice the firm offers, Von Ahsen said.
The IRS recommends investors do their homework before selecting an IRA.
“Before you invest, you should check with your state securities regulator to see if there have been complaints about the investment or the person selling it,” it notes.
IRAs also offer fewer protections if the firm running the account goes out of business, Munnell said.
For example, both 401(k)s and traditional and Roth IRAs have bankruptcy protections.
There’s no cap on 401(k) protection - the court can’t take any of those funds. However, IRAs are protected up to around $1.7 million per person, according to retirement savings firm IRA Financial.
The reverse is true, too. If a company offering 401(k)s goes bankrupt, an employee’s account automatically vests - they get access to their employer’s contributions - and the entire account balance is federally protected, 401(k) administrator Human Interest noted in a June 2025 article.
If the firm offering an IRA goes bankrupt, federal regulations protect up to $500,000 in assets and $250,000 in cash, according to the federally run Securities Investor Protection Corporation.
With these things in mind, the general rule of thumb for 401(k) and IRA contributions is this - fill up a 401(k) first because employers often match contributions up to a limit, Von Ahsen said.
“Get the match first, then put the next dollar wherever it gives you the best combination of tax benefits, investment flexibility, and cost, and then keep increasing your overall retirement savings over time,” he said.
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