401k vs Roth IRA vs Traditional IRA: Which Is Best for You? (2026)
March 2026 · 9 min read
Quick Answer
Use your 401k first up to the employer match (free money). Then max a Roth IRA if you are in a low to medium tax bracket. Then go back and max the 401k. 2026 contribution limits: 401k $23,500, IRA $7,000.
401k vs Roth IRA vs Traditional IRA Comparison
Here is a side by side comparison of the three main retirement account types.
| Feature | 401k | Roth IRA | Traditional IRA |
|---|---|---|---|
| 2026 Limit | $23,500 | $7,000 | $7,000 |
| Employer Match | Yes | No | No |
| Tax on Contributions | Pre-tax | After-tax | Pre-tax (if eligible) |
| Tax on Withdrawals | Taxed | Tax-free | Taxed |
| Early Withdrawal Penalty | 10% under 59.5 | 10% on earnings | 10% under 59.5 |
| Income Limit | None | Yes (phases out) | None for contribution |
| Investment Options | Limited by plan | Any broker | Any broker |
The Retirement Account Priority Order
- →Step 1: Contribute to 401k up to the full employer match — this is an instant 50-100% return
- →Step 2: Pay off high-interest debt above 7%
- →Step 3: Max out a Roth IRA — $7,000 per year of tax-free growth
- →Step 4: Go back and max out the 401k — $23,500 per year
- →Step 5: Open a taxable brokerage account for additional investing
The Power of Starting Early
Investing $7,000 per year starting at age 25 grows to approximately $1.9 million by age 65 at 8% returns. Starting at age 35 with the same contributions grows to only $860,000. The 10-year head start is worth over $1 million. Time in the market is the most powerful retirement planning tool available.
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Try the Retirement Calculator →Frequently Asked Questions
What is the 401k contribution limit for 2026?
The 401k contribution limit for 2026 is $23,500 for employees under 50. Workers 50 and older can contribute an additional $7,500 catch-up contribution for a total of $31,000.
What is the Roth IRA contribution limit for 2026?
The Roth IRA contribution limit for 2026 is $7,000 per person ($8,000 if you are 50 or older). You must have earned income and your ability to contribute phases out at higher incomes.
Should I choose a traditional or Roth 401k?
Choose Roth if you are young or in a low tax bracket now and expect higher income in retirement. Choose traditional if you are in a high tax bracket now and expect lower income in retirement.
Can I have both a 401k and an IRA?
Yes. You can contribute to both a 401k and an IRA in the same year subject to income limits on the IRA. This is a common and smart strategy to maximise tax-advantaged savings.
What happens to my 401k if I change jobs?
You have four options: roll it into your new employer plan, roll it into an IRA, leave it with your old employer or cash it out. Avoid cashing out — you will owe income tax plus a 10% penalty if under 59.5.