Side-by-side
| Feature | Roth IRA | 401(k) |
|---|---|---|
| Tax treatment | Contribute after-tax; withdrawals in retirement are tax-free | Contribute pre-tax; withdrawals taxed as income |
| 2026 contribution limit | ~$7,000 (+$1,000 if 50+) — verify annually | ~$23,500 (+$7,500–8,000 if 50+) — verify annually |
| Income limits | Yes — phases out at higher incomes | None (Roth 401(k): none either) |
| Employer match | None | Often 50–100% match on the first 3–6% of salary |
| Investment choices | Nearly unlimited (any broker) | Limited to your plan menu |
| Withdrawal flexibility | Contributions withdrawable anytime, tax and penalty-free | Withdrawals before 59½ generally taxed + 10% penalty |
| Required distributions | None in the owner's lifetime | RMDs apply (traditional) |
The funding order that fits most people
- 1
401(k) up to the employer match
Free money first. A 50% match on your contributions is an instant 50% return no market can offer. Skipping it is leaving part of your salary on the table.
- 2
Max the Roth IRA
Wider investment choice at any broker, tax-free growth, and contributions (not earnings) can come out penalty-free in a true emergency — a built-in safety valve.
- 3
Back to the 401(k) up to its limit
Especially strong if your plan offers low-cost index funds. If the fund menu is expensive, a taxable brokerage account with cheap ETFs can compete.
- 4
Taxable investing
Anything beyond the tax-advantaged limits goes here — flexible, no withdrawal restrictions, and our ETF screener helps keep costs minimal.
Roth vs traditional: the real question
The account type (IRA vs 401(k)) is mostly plumbing. The consequential choice is when you pay tax:
- RothPay tax now, never again. Best when today's tax rate is likely lower than your retirement rate — typically early career, or if you believe tax rates will rise.
- TraditionalDeduct now, pay tax in retirement. Best when today's rate is high — peak earning years — and you expect to withdraw at a lower rate.
- Unsure?Split between both. A 50/50 mix turns an unknowable future tax rate into a manageable average.
Frequently asked questions
Should I max out my 401(k) or Roth IRA first?▾
The standard order: (1) contribute to your 401(k) at least enough to get the full employer match — it is an immediate 50–100% return; (2) then max a Roth IRA (more investment choice, tax-free growth, and contributions can be withdrawn penalty-free in true emergencies); (3) then return to the 401(k) up to its limit. Adjust if your 401(k) has exceptionally good, low-cost fund options.
Can I contribute to both a Roth IRA and a 401(k)?▾
Yes — they are independent accounts with separate limits. You can contribute to a 401(k) at work and a Roth IRA in the same year, up to each limit, provided you have enough earned income and meet Roth income eligibility rules.
What is a Roth 401(k)?▾
A 401(k) with Roth tax treatment: contributions come from after-tax pay, growth and qualified withdrawals are tax-free. It combines the high 401(k) contribution limit with Roth taxation — and unlike a Roth IRA, it has no income eligibility cap. Many employers now offer it alongside the traditional option.
Is Roth or traditional better if my income will grow?▾
Generally, Roth is more attractive early in your career when your tax rate is lower than it likely will be in retirement — you lock in today's rate forever. Traditional tends to win when your current tax rate is high (peak earning years) and you expect a lower rate after retiring. Uncertain? Splitting contributions between both hedges the tax-rate guess.
What are the 2026 contribution limits?▾
These figures are adjusted annually — verify current-year numbers with the IRS or your plan provider before contributing. Recent years have seen 401(k) limits around $23,000–$24,500 (plus a catch-up of roughly $7,500–$8,000 if 50+) and Roth/traditional IRA limits around $7,000 (catch-up $1,000 if 50+). Roth IRA eligibility also phases out at higher incomes.
What if I leave my job — what happens to my 401(k)?▾
The money is yours (vested portion). Common options: leave it in the old plan, roll it into your new employer's plan, or roll it into an IRA — which often widens investment choice. Avoid cashing out: withdrawals before 59½ typically trigger income tax plus a 10% penalty, and you permanently lose the compounding.
Related guides
Disclaimer: For informational and educational purposes only; not financial or tax advice. Contribution limits and eligibility rules change annually — confirm current figures with the IRS or a qualified professional. Investing involves risk, including possible loss of principal.