Between a 401(k), a Traditional IRA, and a Roth IRA, most people default to whatever their employer signed them up for and never think about it again. That's a mistake - the order you fund these accounts in, and which type you choose, can be worth tens of thousands of dollars over a career. Here's how they actually compare.
The Basics, Side by Side
| Feature | 401(k) | Traditional IRA | Roth IRA |
|---|---|---|---|
| 2026 contribution limit | $24,500 ($32,250 if 50+) | $7,500 ($8,600 if 50+) | $7,500 ($8,600 if 50+) |
| Tax treatment | Pre-tax (traditional) or after-tax (Roth 401k) | Pre-tax, deductible | After-tax, tax-free growth |
| Employer match | Often yes | No | No |
| Investment options | Limited to plan menu | Any brokerage, unlimited | Any brokerage, unlimited |
| Income limits | None | Deduction phases out at higher income if covered by workplace plan | Phases out ~$150K-$165K single / $236K-$246K joint (2026 est.) |
Step 1: Always Get the Full Employer Match
If your employer offers a 401(k) match, this is the single highest guaranteed return available to you - better than almost any investment. A common structure is a 50% match up to 6% of salary. On a $70,000 salary, contributing 6% ($4,200/year) gets you an extra $2,100/year from your employer - a 50% instant return before your money even grows.
Step 2: Max Out an IRA
After capturing the full match, most planners recommend funding an IRA next, because it gives you dramatically more investment choices and often lower fees than a workplace plan. Choose Roth if you expect to be in a similar or higher tax bracket in retirement (common for younger, lower-earning savers), or Traditional if you're in a high tax bracket now and expect a lower one in retirement.
Step 3: Go Back and Max the 401(k)
Once your IRA is maxed, return to your 401(k) and contribute up to the full $24,500 annual limit if your budget allows. Even with limited fund choices, the tax-deferred (or Roth, tax-free) growth on the extra contributions is still valuable, and 401(k)s have much higher contribution ceilings than IRAs.
What If You Don't Have a 401(k) Match?
If your employer offers no match, or you're self-employed, the priority flips: max your IRA first (better investment options, typically lower fees), then use the 401(k) (or a Solo 401(k)/SEP IRA if self-employed) for the tax-advantaged space beyond the IRA limit.
Don't Leave Old 401(k)s Behind
When you change jobs, you generally have three choices: leave the money in the old plan, roll it into your new employer's 401(k), or roll it into an IRA. Rolling into an IRA typically unlocks far more investment options and often lower expense ratios than employer plans, which is why many advisors recommend it as the default move - just make sure it's a direct (trustee-to-trustee) rollover to avoid tax withholding complications.