Roth IRA vs 401(k)
A 401(k) is an employer plan: contributions come out of your paycheck before tax, the 2026 limit is high ($24,500), and many employers add a match. A Roth IRA is an account you open yourself: you fund it with money you have already paid tax on, it grows and comes out tax free in retirement, it has income limits, and the 2026 contribution cap is far lower ($7,500). You do not have to pick one. Most people who can afford to save use both, in a specific order: capture the full employer match in the 401(k) first, then fund the Roth IRA, then come back to the 401(k).
What is the difference between a Roth IRA and a 401(k)?
Three differences drive everything else.
When you pay tax. A traditional 401(k) is pre-tax: contributions lower your taxable income now, and you pay ordinary income tax on every dollar you withdraw later. A Roth IRA is the reverse: no deduction now, no tax later. If your tax rate in retirement is higher than it is today, the Roth wins. If it is lower, the traditional 401(k) wins. Most people cannot know for sure, which is a good argument for holding some of each.
Who controls it. Your 401(k) lives with your employer and their chosen provider. You are limited to the funds on that menu, and the account is tied to the job. A Roth IRA is yours, opened at any broker, with the whole market to invest in. Leave a job and the 401(k) has to be rolled over or left behind; the Roth IRA never moves.
The match. A 401(k) can come with an employer match. A Roth IRA cannot. That match is the single biggest reason the 401(k) comes first in the funding order below.
What are the 2026 contribution limits?
For 2026, you can defer up to $24,500 into a 401(k) (also 403(b), most 457 plans, and the federal Thrift Savings Plan). The IRA limit, which covers Roth and traditional IRAs combined, is $7,500. That gap is the point: the 401(k) lets you shelter more than three times as much.
Catch-up contributions add more if you are older:
- Age 50 and over: an extra $8,000 in the 401(k) and an extra $1,100 in an IRA.
- Age 60 to 63: a higher 401(k) catch-up of $11,250 instead of $8,000, a SECURE 2.0 provision. It drops back to the standard catch-up at 64.
One rule catches higher earners. Starting with taxable years after December 31, 2026, if your wages from your employer in the prior year topped the Roth catch-up threshold, your 401(k) catch-up contributions must go in as Roth (after tax) rather than pre-tax. The threshold is $145,000 in the statute and indexed for inflation; the figure used to test 2026 catch-ups is $150,000. It affects only the catch-up portion, and only for people over that wage line.
Counting your own deferrals plus any employer match plus profit sharing, total 2026 additions to a 401(k) can reach $72,000 (or $80,000 with the age 50 catch-up).
What are the Roth IRA income limits for 2026?
Roth IRAs phase out as income rises, measured by modified adjusted gross income (MAGI). For 2026:
- Single or head of household: full contribution below $153,000, partial from $153,000 to $168,000, none at or above $168,000.
- Married filing jointly: full below $242,000, partial from $242,000 to $252,000, none at or above $252,000.
- Married filing separately: phases out between $0 and $10,000, so almost no one in this status can contribute directly.
A 401(k) has no income limit. You can earn any amount and still contribute the full $24,500. If your income is above the Roth ceiling, the "backdoor Roth" (contribute to a traditional IRA, then convert) is the common workaround, but the mechanics and the pro-rata tax rule are beyond this page.
Roth IRA vs traditional 401(k): side by side
| Roth IRA | Traditional 401(k) | |
|---|---|---|
| Who offers it | You open it at any broker | Your employer sponsors it |
| Tax now | After tax (no deduction) | Pre-tax (lowers taxable income) |
| Tax in retirement | Withdrawals tax free | Withdrawals taxed as ordinary income |
| 2026 contribution limit | $7,500 ($8,600 if 50+) | $24,500 ($32,500 if 50+; $35,750 ages 60-63) |
| Income limit to contribute | Yes (phases out; see above) | None |
| Employer match | No | Often yes |
| Required minimum distributions | None during owner's lifetime | Start at age 73 |
| Early withdrawal (before 59½) | Contributions out anytime tax and penalty free; earnings generally taxed plus 10% penalty | Generally taxed plus 10% penalty, with exceptions |
Source: IRS Notice 2025-67 and the IRS 2026 limit announcement. The IRA 50-plus figure is $7,500 plus the $1,100 catch-up; the 401(k) figures add the $8,000 or $11,250 catch-up.
Which should I contribute to first?
Fund them in this order:
- 401(k) up to the full employer match. If your employer matches, say, 50% of the first 6% you contribute, put in that 6%. The match is an immediate, guaranteed return on your money. Nothing else in investing beats it, so this comes before everything.
- Max out the Roth IRA. $7,500 for 2026. You get a wider investment menu, tax-free growth, no required withdrawals ever, and access to your contributions in a pinch. If your income is above the Roth limit, this is where a traditional IRA or backdoor Roth fits.
- Back to the 401(k), up to the $24,500 limit. Once the Roth IRA is full, keep filling the 401(k) with the tax break and higher ceiling.
The logic: grab free money first (the match), then the most flexible tax-free account (Roth IRA), then the high-capacity account (the rest of the 401(k)). If your employer offers a Roth 401(k) option, you can also make your 401(k) contributions after tax, which changes the tax math but not the order.
Can I have both?
Yes, and it is the normal setup. Contributing to a 401(k) does not reduce how much you can put in a Roth IRA, and vice versa. They have separate limits: $24,500 and $7,500 for 2026. The only cross-limit is the Roth IRA's income phase-out, which depends on your MAGI, not on your 401(k). A worker under 50 who maxes both is sheltering $32,000 in 2026.
RMDs and early access, briefly
Traditional 401(k)s and IRAs force you to start withdrawing at age 73 through required minimum distributions (RMDs), and those withdrawals are taxed. Roth IRAs have no RMDs during your lifetime, so the money can keep growing untouched or pass to heirs. Designated Roth accounts inside a 401(k) also dropped lifetime RMDs starting in 2024.
For early access before age 59½, the Roth IRA is the most forgiving account you have: you can pull out your own contributions (not earnings) anytime, tax and penalty free, because you already paid tax on them. Touching a 401(k) early generally means income tax plus a 10% penalty, with a limited set of exceptions. This flexibility is a real reason to fund the Roth IRA before piling extra into the 401(k), though a retirement account is a poor emergency fund either way.
Sources
- 2026 401(k) and IRA limits, catch-ups, and Roth IRA MAGI phase-outs: IRS, "401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500", and the underlying IRS Notice 2025-67 (PDF).
- SECURE 2.0 Roth catch-up rule, effective for taxable years after Dec 31, 2026: IRS, final regulations on the Roth catch-up rule.
- Roth IRA income limits and IRA contribution rules: IRS, Retirement topics: IRA contribution limits.
- Required minimum distributions begin at age 73; Roth accounts require none during the owner's lifetime: IRS, RMD FAQs.