401(k) vs. Roth IRA: Which Should You Choose?
How a 401(k) and a Roth IRA differ in taxes, 2026 contribution limits, income limits, investment choices and access to your money, and the order in which most people should fund them.
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Key takeaways
- 2026 limits: $24,500 for 401(k) employee contributions (plus $8,000 catch-up at 50+, $11,250 at ages 60 to 63) and $7,500 for IRAs (plus $1,100 at 50+).
- A traditional 401(k) cuts your taxes now; a Roth IRA is funded with after-tax money and grows tax-free for qualified withdrawals.
- Roth IRA contributions phase out between $153,000 and $168,000 of MAGI for single filers and $242,000 and $252,000 for joint filers in 2026.
- A common order: 401(k) up to the employer match, then a Roth IRA, then more 401(k).
The 401(k) and the Roth IRA are the two workhorses of American retirement saving, and for most workers the answer to "which one" is "both, in the right order." They differ in who offers them, how much you can put in, when you pay tax and how easily you can reach the money. Here is how they compare with the 2026 figures.
401(k) vs. Roth IRA at a glance
| 401(k) | Roth IRA | |
|---|---|---|
| Who offers it | Your employer | Any brokerage, bank or robo-advisor; you open it yourself |
| 2026 contribution limit | $24,500; $32,500 at 50+; $35,750 at ages 60 to 63 | $7,500; $8,600 at 50+ |
| Employer match | Common | None |
| Tax treatment | Traditional: pre-tax now, taxed at withdrawal. Many plans also offer a Roth 401(k) | After-tax now, tax-free qualified withdrawals |
| Income limit to contribute | None | Phase-out $153,000–$168,000 single, $242,000–$252,000 joint |
| Investment choices | The plan's fund menu | Almost any stock, ETF, fund or bond |
| Access before 59½ | Generally taxed plus 10% penalty, with exceptions; loans may be allowed | Contributions can be withdrawn any time tax- and penalty-free; earnings follow stricter rules |
| Required minimum distributions | Traditional: yes, from age 73. Roth 401(k): none during your lifetime since 2024 | None during your lifetime |
The tax question: pay now or pay later?
With a traditional 401(k), contributions reduce your taxable income today, and withdrawals in retirement are taxed as income. With a Roth IRA, you pay tax on the money first, and qualified withdrawals, including all the growth, are tax-free. If your tax rate in retirement will be lower than today, traditional tends to win; if it will be the same or higher, Roth tends to win. Because no one knows future tax rates, many people hold both for flexibility.
A qualified Roth IRA withdrawal requires that you be at least 59½ (or meet another exception) and that your first Roth IRA contribution was at least five years earlier.
The employer match comes first
If your employer matches, for example 50 cents per dollar on the first 6% of salary, contributing at least enough to get the full match is an instant 50% return that no other account can offer. Missing it is the most expensive retirement mistake.
A sensible order for most people
- 401(k) up to the full employer match.
- Roth IRA up to $7,500 ($8,600 at 50+) if your income allows, for tax-free growth and low-cost investment choices.
- Back to the 401(k) up to the $24,500 limit, or as much as your budget allows.
- HSA if you have a high-deductible health plan, then a taxable brokerage account.
If your 401(k) has unusually high fees or poor funds, the Roth IRA becomes even more attractive after the match. If your income is above the Roth IRA limits, a Roth 401(k) has no income limit, and some people use a "backdoor" Roth, a nondeductible traditional IRA contribution converted to Roth, which has tax rules worth reviewing with a professional.
Example: one year of saving
A single 30-year-old earning $70,000 contributes 6% ($4,200) to a 401(k) with a 50% match on the first 6% ($2,100 from the employer), then $7,500 to a Roth IRA. That is $13,800 a year going into retirement accounts, of which $2,100 is free money. In the 22% bracket, the traditional 401(k) contribution also lowers this year's federal income tax by about $924. To see what regular contributions can grow to, use the compound interest calculator.
New rules to know in 2026
- Higher catch-up at 60 to 63: workers in this age range can contribute an extra $11,250 to a 401(k) instead of $8,000.
- Roth catch-up for higher earners: if you earned more than $150,000 in FICA wages from your employer in 2025, catch-up contributions to that employer's plan in 2026 must go in as Roth.
- No RMDs for Roth 401(k)s: since 2024, designated Roth accounts in workplace plans no longer require distributions during the owner's lifetime.
What to invest in
The account is only the container. Inside it, low-cost diversified index funds, a target-date fund or a three-fund portfolio suit most people. Asset allocation by age and how much you need to retire are covered in how to invest for retirement.
Frequently asked questions
Can I have a 401(k) and a Roth IRA at the same time?
Yes. The limits are separate: in 2026 you can contribute up to $24,500 to a 401(k) and $7,500 to an IRA, plus catch-up amounts if eligible.
Is a Roth IRA better than a 401(k)?
Neither is better in every case. The 401(k) wins on limits and the employer match; the Roth IRA wins on tax-free growth, investment choice and flexibility. Most people use both.
What if I earn too much for a Roth IRA?
You can use a Roth 401(k) if your plan offers one, or consider a backdoor Roth IRA conversion, ideally with professional advice because of the pro-rata tax rules.
Can I withdraw from a Roth IRA early?
Your contributions, yes, at any time without tax or penalty. Earnings withdrawn before 59½ and the five-year mark are generally taxed and penalized unless an exception applies.
What is the 401(k) limit for 2026?
$24,500 in employee contributions, plus $8,000 in catch-up contributions at 50 or older, or $11,250 at ages 60 to 63.
