Which retirement account should you use?

What are the four main retirement accounts?

Almost every retirement dollar in the United States sits in one of four accounts, and they come from crossing two yes/no questions: does the money go in before tax or after tax (traditional vs Roth), and does it come through an employer or do you open it yourself (401(k) vs IRA)?

• Traditional 401(k): employer plan, pre-tax money in, taxed on the way out.
• Roth 401(k): employer plan, after-tax money in, tax-free qualified withdrawals.
• Traditional IRA: you open it yourself, pre-tax (or partly pre-tax) money in, taxed on the way out.
• Roth IRA: you open it yourself, after-tax money in, tax-free qualified withdrawals.

If you are self-employed with no employer to sponsor a plan, a SEP-IRA or a Solo 401(k) fills the "employer plan" role instead, with much higher contribution room tied to your business income. See our Solo 401(k) guide for that path; the rest of this page assumes you are an employee, contractor aside.

What are the two decisions that actually matter?

Every retirement-account question people ask (Roth IRA vs 401(k), Roth vs traditional IRA, should I use both) is really one of two underlying decisions, and conflating them is why the choice feels harder than it is.

Decision 1: which account. A 401(k) (or 403(b), or the account your employer sponsors) can carry an employer match and a much higher contribution ceiling. An IRA has no employer involved, a smaller contribution ceiling, and a wider choice of investments because you pick the broker. These are not mutually exclusive. Most people who can afford to save use both, since a 401(k) contribution does not reduce how much you can put in an IRA, or the reverse.

Decision 2: Roth or traditional. This axis applies inside either account. A 401(k) can offer a Roth option alongside the traditional one; an IRA can be opened as either type (subject to the Roth income cap covered below). Roth means you pay tax on the contribution now and owe nothing on qualified withdrawals later. Traditional means you get a deduction (or a pre-tax paycheck reduction) now and pay ordinary income tax on withdrawals later. The right answer depends on comparing your marginal tax rate today to your expected rate in retirement, not on which account the money sits in.

Because these two decisions are independent, the real menu is four accounts, not two. Our Roth IRA vs 401(k) and Roth IRA vs traditional IRA pages each cover one pairing in depth; this page is the map that shows how all four fit together and what order to fund them in.

The four accounts side by side

Source: IRS Notice 2025-67 (2026 limits and Roth IRA MAGI phase-outs); IRS, "Roth Comparison Chart"; IRS RMD FAQs.

Two things in that table are easy to miss when you only read the pairwise comparisons. First, the $24,500 401(k) limit is one shared number across traditional and Roth 401(k) contributions combined, the same way the $7,500 IRA limit is shared across traditional and Roth IRA contributions. You cannot put $24,500 in each. Second, a Roth 401(k) is not as forgiving as a Roth IRA for early access: a Roth IRA lets you pull your contributions out first, tax and penalty free, but a Roth 401(k) withdrawal is prorated between your contributions and the account's earnings, so part of an early withdrawal is taxable even though the account is "Roth."

What order should you fund your retirement accounts in?

Given a fixed amount to save each month, this is the order that gets the most value out of every dollar, in priority sequence:

1. 401(k) up to the full employer match. If your employer matches, say, 50% on the first 6% of pay you contribute, put in that 6% before anything else. The match is an immediate, guaranteed return on your own contribution that nothing else in investing can match. Skipping it to fund a different account first is leaving free money on the table for no gain elsewhere.
2. High-interest debt, or an HSA if you are eligible. Paying down a credit card at 20%+ interest is a guaranteed return no investment reliably beats, so it outranks further retirement saving. If you instead have a qualifying high-deductible health plan, a health savings account (HSA) gets a triple tax break, a deduction going in, tax-free growth, and tax-free withdrawals for medical costs, that no retirement account matches; 2026 HSA limits are $4,400 self-only or $8,750 family, plus a $1,000 catch-up at 55 or older.
3. Max out an IRA, Roth or traditional depending on your income. $7,500 for 2026 ($8,600 if 50 or older). An IRA gives you a far wider investment menu than most 401(k) plans and, in the Roth version, the most flexible early access of any of the four accounts. If your income is under the Roth phase-out, Roth is usually the default here; above it, a traditional IRA (deductible or not) is your only direct option. See Roth IRA vs traditional IRA for how to pick between them.
4. Go back and max the 401(k), up to $24,500. Once the IRA is full, the 401(k)'s much higher ceiling is the next place to shelter money from tax, even though its investment menu is narrower and it is tied to your employer.
5. Then a taxable brokerage account. Once every tax-advantaged slot above is full, ordinary investing (subject to capital gains tax, with no contribution limit or withdrawal restriction) is what is left. There is no cap here and no penalty for touching it early, but you also get no tax shelter.

This order assumes you can afford to reach every step. If you cannot, work down the list as far as your budget allows; the ranking (match, then debt/HSA, then IRA, then the rest of the 401(k), then brokerage) reflects which dollar buys the most, not a requirement to hit every rung. See how a 401(k) works for the mechanics of the match and vesting behind step one.

What are the 2026 contribution limits for each account?

Source: IRS Notice 2025-67; IRS Revenue Procedure 2025-19 (HSA figures). Full breakdown with every catch-up and the year-over-year change from 2025: 2026 contribution limits.

What are the Roth IRA income limits for 2026?

A Roth IRA is the only one of the four accounts with a hard income cap on the contribution itself, measured by modified adjusted gross income (MAGI):

• Single or head of household: full $7,500 below $153,000, phasing out through $168,000, none above it.
• Married filing jointly: full amount below $242,000, phasing out through $252,000, none above it.
• Married filing separately: phases out between $0 and $10,000, a range fixed by law and not adjusted for inflation.

A traditional IRA has no such cap on contributing, but if you (or a spouse) are covered by a workplace plan, the deduction itself phases out over a separate, lower income range: $81,000 to $91,000 single, $129,000 to $149,000 married filing jointly if you are the covered spouse. Above the Roth cap, contributing to a traditional IRA and converting it (the "backdoor Roth") is the common workaround; the mechanics are covered in Roth IRA vs traditional IRA.

Should you pick Roth or traditional?

This is decision 2 from above, and it is the same question whether you are choosing inside a 401(k) or an IRA: is your marginal tax rate today higher or lower than the rate you expect to pay on withdrawals in retirement?

Traditional tends to win when you are in a high-earning year now (a peak career salary, a two-income household in a high bracket) and expect meaningfully less taxable income in retirement, whether from a lower spending need, moving to a no-tax state, or retiring before Social Security and pensions start. The deduction is worth more at today's high rate than the tax will cost at tomorrow's lower one.

Roth tends to win when you are early in your career and in a low bracket now, expect your income (and rate) to rise, or simply think today's rates are a floor rather than a ceiling given the federal deficit and demographics. Paying tax at today's known, lower rate and locking in tax-free withdrawals removes the risk that future tax law is worse for you.

Nobody can know their exact future bracket decades out, which is the practical argument for splitting contributions between both inside whichever account you are funding: some Roth, some traditional, so you are not fully exposed to a guess going wrong in either direction.

A worked example: the waterfall on a $70,000 salary

Say you earn $70,000, your 401(k) plan matches 50% of the first 6% you contribute, and you have $6,000 a year available to save beyond that match. Working the waterfall:

1. Step 1, the match: 6% of $70,000 is $4,200. You contribute that, and your employer adds another $2,100 (50% of $4,200). You have spent $4,200 of your own money and put $6,300 into the account.
2. Step 2, no high-interest debt, not HDHP-enrolled: skip to step 3.
3. Step 3, the IRA: your remaining $6,000 goes into a Roth IRA (assuming your income is under the phase-out), short of the $7,500 max but the best use of what is left after the match.
4. Steps 4 and 5 do not apply this year because the budget ran out before the IRA was maxed, let alone before returning to the 401(k) or a brokerage account.

Total saved for the year: $4,200 of your own 401(k) money, $2,100 in free employer match, and $6,000 in a Roth IRA, for $12,300 landing in tax-advantaged accounts against $10,200 out of pocket. Raise the available savings and the next dollar goes back into the 401(k), not into a taxable brokerage account, because $24,500 of 401(k) room is still unused.

What if you're self-employed?

The waterfall above assumes an employer 401(k). Self-employed people and small-business owners without employees typically use a SEP-IRA or a Solo 401(k) instead, both of which let you contribute far more than a regular IRA (up to 25% of net self-employment earnings for a SEP-IRA, or an employee-plus-employer combination for a Solo 401(k)) because there is no separate employer to fund a match. The Roth-versus-traditional question still applies the same way inside a Solo 401(k). See our Solo 401(k) guide for the contribution formula and how it compares to a SEP-IRA.

The bottom line

Stop treating "which retirement account" as one decision. It is two: which account (401(k) or IRA, and you can use both) and Roth or traditional (a bet on your tax rate now versus later). Fund them in order: capture the full 401(k) match first because nothing beats free money, clear high-interest debt or fund an HSA next, max an IRA for the wider investment menu and more flexible access, return to the 401(k) for its higher ceiling, and only then move to a taxable brokerage account. Ready to open the account you are missing? See how to open a Roth IRA, and check the full 2026 limits before you set next year's contribution rate.