Both a 401(k) and an IRA are tax-advantaged retirement accounts. If you have access to both, the honest answer is: use both. The more useful question is which one to fund first and how to split contributions between them, because getting that order wrong quietly costs people tens of thousands of dollars over a career.
What Is a 401(k)?
A 401(k) is an employer-sponsored plan funded straight out of your paycheck, either before taxes (traditional) or after (Roth 401(k)), with the balance growing tax-deferred inside the plan. The part that makes it special is the match. Most employers put in 50 cents for every dollar you contribute, up to 6% of salary, so on a $100,000 income, contributing 6% ($6,000) turns into $9,000 invested for $6,000 spent. That's a 50% return before the market has done anything at all, and no other account can offer it.
For 2026, you can put in up to $23,500, or $31,000 if you're 50 or older thanks to the catch-up provision. There's no income cap on contributing to a traditional 401(k), so it's open to everyone regardless of what they earn.
The tradeoff is investment choice. You're limited to whatever menu your employer set up, usually 15 to 30 mutual or target-date funds. That's a real constraint, though in practice most people building a simple index fund portfolio find enough there to work with. The 401k Calculator is worth running if you want to see how different contribution rates play out over time.
One more thing worth knowing: at 73, traditional 401(k) holders have to start taking required minimum distributions. The IRS forces a calculated withdrawal, and the tax that comes with it, every year from that point on.
What Is an IRA?
An IRA is a retirement account you open on your own, at any brokerage, with no employer involved. There are two main flavors: traditional (pre-tax in, taxed on the way out) and Roth (taxed going in, tax-free coming out). The 2026 limit is $7,000, or $8,000 if you're 50+.
The Roth IRA earns its reputation. Qualified withdrawals owe nothing, there are no forced distributions during your lifetime, and that combination means the money can just keep compounding for as long as you leave it alone. Traditional IRA withdrawals get taxed as regular income, and RMDs kick in at 73, same as the 401(k).
There's an income ceiling on the Roth, though: for 2026, single filers phase out between $150,000 and $165,000 MAGI, and married-filing-jointly couples phase out between $236,000 and $246,000. Past that, a backdoor Roth, a non-deductible traditional contribution followed by a conversion, is how high earners still get money into a Roth.
What really sets the IRA apart is that you can put the money into almost anything publicly traded: individual stocks, ETFs, bonds, REITs, you name it. That matters most if your 401(k)'s fund menu doesn't include the cheap index funds you'd actually want. The Roth vs Traditional IRA Calculator can help you compare the two based on where you expect your tax rate to land, now versus in retirement.
401(k) vs IRA: Side-by-Side Comparison
| Dimension | 401(k) | IRA |
|---|---|---|
| 2026 contribution limit | $23,500 ($31,000 if 50+) | $7,000 ($8,000 if 50+) |
| Employer match | Yes, average 50% up to 6% of salary | No |
| Investment options | Limited to plan menu (~15-30 funds) | Unlimited, any stock, ETF, or fund |
| Income limit to contribute | None | Roth phase-out: $150k-$165k (single) |
| Roth option available | Yes (Roth 401(k)) | Yes (Roth IRA) |
| Penalty-free withdrawals begin | Age 59½ | Age 59½ |
| Required minimum distributions | Age 73 (traditional); Roth 401(k) has RMDs | None for Roth IRA; age 73 for traditional IRA |
| Loan provision | Yes, up to 50% of vested balance, max $50,000 | No |
| Portability | Rolls to IRA on job change | Fully portable; not tied to employer |
The Priority Order: Which to Fund First
Most financial planners land on roughly the same sequence for 2026.
Start with the 401(k) match. This is the one step that isn't optional. A 50% match on 6% of salary is a guaranteed return that beats anything else on this page, full stop. Skipping it to fund something else first is leaving money on the table.
Next, max the Roth IRA. Once you've captured the match, redirect contributions to your Roth IRA and get it to $7,000. Its tax-free growth, open investment menu, and lack of RMDs make it one of the most flexible accounts you'll ever own. If you're over the income limit, this is where the backdoor Roth comes in instead.
After that, go back to the 401(k). With the Roth full, return to the 401(k) and push contributions up to $23,500. Between the two accounts, you're now sheltering $30,500 a year, or $39,000 if you're 50+ and using both catch-up limits.
Finally, a taxable brokerage account picks up whatever's left. Once both tax-advantaged accounts are maxed, anything left over goes into a regular brokerage account. You lose the upfront tax break, but long-term capital gains rates are still favorable and there's no restriction on when you can touch the money.
Run the Retirement Calculator with both accounts funded to see what this actually adds up to. The gap between funding just one account versus both is frequently $300,000 to $500,000 or more by retirement, depending on salary, time horizon, and returns.
Special Situations
If you're a high earner above the Roth income limit, max the 401(k) first (use the Roth 401(k) option if it's offered), then use a backdoor Roth to still get $7,000 a year into Roth space. Some plans go further and allow a mega backdoor Roth, which can shelter tens of thousands more.
Self-employed without an employer plan? A Solo 401(k) lets you combine the $23,500 employee limit with employer contributions up to 25% of net self-employment income, topping out at $70,000 for 2026, and you can still stack a Roth or traditional IRA on top of that.
Changed jobs recently? Roll the old 401(k) into a traditional IRA with a direct rollover. It's tax-free, and it trades a narrow fund menu for the entire IRA investment universe.
Which Account Is Right for You?
If you're a W-2 employee with a 401(k) match on offer, there isn't really a choice to make. Use both accounts, in the order above. The 401(k) brings the match and the higher limit; the IRA brings flexibility and investment freedom. Funding one instead of the other trades away something you don't have to give up, which is exactly why the right answer is almost always both.