In the world of tax-advantaged retirement savings accounts, there are plenty of options. But the two most commonly-used options are the 401(k) and the IRA. Both come in traditional (save taxes on contributions) and Roth (save taxes on withdrawals) options. While there are many similarities between a 401k and an IRA, there are also some important differences.

The IRA and the 401(k) have their advantages and disadvantages. Which one is better for you will depend on your current circumstances and future goals. And many retirees will eventually tap into the savings power of both of these retirement savings vehicles.

When faced with the choice between either putting money into a 401(k) or putting money into an IRA, the key is to thoroughly understand your options. So here are the basics, pros, and cons of both the IRA and the 401(k).

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IRA Basics

IRA stands for Individual Retirement Arrangement (although some refer to it as an Individual Retirement Account). You can open either a traditional or a Roth IRA (subject to some limitations discussed below), depending on when you want the income tax savings. A deductible IRA grows tax-deferred. Taxes are paid when withdraws are taken. A Roth IRA consists of after-tax contributions that grow tax-free.

IRA Pros

Not Employer-Sponsored: Unlike a 401k, an IRA is not dependent on your employer. As a result, the IRA is a popular retirement vehicle for full-time and part-time workers with no 401(k) option at work.

You Get Control: With an IRA, you get to decide where to open it, whether that’s through a bank, mutual fund company, online broker or an investment company like Betterment. Plus, you can choose your investing options within your IRA. The options you have available to you will depend on where you open your account, but you can easily choose and change the asset allocation within your IRA.

More Options: Employer-sponsored 401(k) plans often come with limited investment options. While this isn’t always true, the general rule is that IRA investors get more investment options than 401(k) investors.

IRA Cons

Lower Contribution Limits: Probably the biggest drawback to the IRA is its low maximum annual investment. The maximum you can contribute to a traditional or Roth IRA in 2014 is $5,500 – $6,500 if you’re age 50 or older.

Contributions May Not Be Deductible: For those with access to a workplace retirement account such as a 401k, contributions to an IRA may not be deductible. The rules are a bit complicated, and hinge on whether you or your spouse have access to a workplace retirement account and how much income you and your spouse earn. You can read the details of the rules here.

Roth IRA May Not Be Available: Depending on your income and your spouse’s income, you may not be eligible to contribute to a Roth IRA.

401(k) Basics

A 401(k) is an employer-sponsored, tax-advantaged retirement account. It’s similar to an IRA in that it comes in traditional and Roth flavors, though traditional is by far the more common option. Contributions to a traditional 401(k) reduce your taxable income on the front end. Like a traditional IRA, the money in a 401(k) grows tax-deferred.

You don’t have to be traditionally employed to have a 401(k) account, but most people with a 401(k) are. Micro and small business owners can open their own version of the 401(k) for themselves and their employees. However, this can get complicated, so talk with your accountant or financial advisor if you choose to go this route.

401(k) Pros

Higher Contribution Limits: The contribution limits for a 401(k) are much higher than those for an IRA – $17,500 plus a $5,500 catch-up contribution for those age 50 and over (as of 2014). This makes the 401(k) a great way to fund the majority of your retirement since even maxing out an IRA probably won’t give you all the savings you need.

Possible Employer Matches or Contributions: This varies from employer to employer, but it’s not uncommon for employers to offer matches or contributions to your 401(k) that go over and above your base compensation. And the best part for big savers is that employer matches don’t count towards your total contribution limit. So you can contribute the maximum $17,500 (or $23,000) for the year and your employer can kick in a matching contribution.

Borrowing Capability: While rules vary, most 401(k) plans come with a provision that essentially lets you borrow from yourself. Typically, you can borrow up to $50,000 or half your 401(k) balance, whichever is less. This isn’t always smart, but it can be. If you fall into real financial trouble, you may also be qualified for a penalty-free hardship withdrawal, which you won’t have to pay back.

Easy to Setup and Make Contributions: Most employers make it very easy to start saving for retirement. Contributions come directly out of an employee’s paycheck, and online access makes it easy to choose and change investment options.

401(k) Cons

Less Flexibility: Since your employer chooses your 401(k) provider, you get less flexibility in terms of investment options. They may or may not have made a good choice to begin with, and you might not get many good investing options within your 401(k) account.

Possible Waiting Periods: If you start with a new employer, you may have to wait six months to a year before they’ll allow you to join their 401(k) plan. Unless you stash retirement savings elsewhere, that’s a long period of missed retirement account contributions.

Which is Best?

The bottom line here is that many excellent retirement savings plans include both a 401(k) and an IRA. A 401(k) lets you cash in on employer matches. And it lets you contribute much more annually to your overall retirement savings. But an IRA gives you the flexibility to invest even more, and gives you complete control of your investment options. So if you’re planning to save big and have the employer option of a 401(k), having both accounts could be a smart move.