Finance · 4 min read
401(k) vs IRA: Where Should Your Next Dollar Go?
You don't have to pick one: you can contribute to both a 401(k) and an IRA in the same year. The question is really about order. A popular approach is: 401(k) up to the full employer match, then an IRA for more investment choice and often lower costs, then back to the 401(k) if you want to save more. The 401(k) has much higher limits ($24,500 in 2026 versus $7,500 for an IRA), so heavy savers usually need both.
The key differences
| 401(k) | IRA | |
|---|---|---|
| Who opens it | Your employer | You, at any brokerage |
| 2026 contribution limit | $24,500 (+$8,000 at 50+, +$11,250 at 60–63) | $7,500 (+$1,100 at 50+) |
| Employer match | Often | No |
| Investment choice | Limited menu of funds | Almost anything |
| Fees | Depends on the plan | Can be very low |
| How you contribute | Payroll deduction | Any time, up to the tax filing deadline |
| Roth option | If the plan offers it; no income limit | Roth IRA has income limits |
Step 1: Get the full match
If your employer matches 401(k) contributions, that's an instant return you won't find anywhere else. Put in at least enough to get all of it. The 401(k) calculator tells you if you're leaving any on the table.
Step 2: Consider an IRA
After the match, an IRA can be the better next home for your money because:
- You can choose low-cost index funds from any provider.
- Some 401(k) plans have high fees or a poor fund menu.
- A Roth IRA gives tax-free growth and more flexibility: you can withdraw your contributions (not earnings) at any time without tax or penalty.
Roth IRA eligibility phases out at higher incomes. For 2026, the phase-out range is $153,000–$168,000 of modified adjusted gross income for single filers and $242,000–$252,000 for married couples filing jointly. A traditional IRA has no income limit for contributions, but the tax deduction can be reduced if you (or your spouse) are covered by a workplace plan and earn above certain levels. The Roth IRA calculator projects growth, and Roth IRA vs traditional IRA compares the two.
Step 3: Back to the 401(k)
Once your IRA is maxed, extra retirement savings go back into the 401(k), up to its much higher limit. For most people, reaching around 15% of income across both accounts is a strong target; see how much should I contribute to my 401(k)?
When the 401(k) should come before the IRA
- Your plan has excellent, low-cost funds and you like the simplicity of one account.
- You'd forget to fund an IRA. Payroll deductions happen automatically; IRA contributions depend on you remembering.
- Your income is too high for a Roth IRA and you can't deduct traditional IRA contributions.
A quick example
You earn $70,000, and your employer matches 50% up to 6%. You want to save 15% ($10,500) a year.
- 401(k): 6% = $4,200, which gets you $2,100 of match.
- Roth IRA: $6,300 (your remaining $10,500 target, comfortably inside the $7,500 limit).
- Next year, if you can save more, the extra goes back into the 401(k).
That combination gets the free money, gives you tax diversification (pre-tax 401(k) plus tax-free Roth) and keeps fees low.
Don't forget the details
Limits change each year; the full 2026 rules are in 401(k) contribution limits for 2026. If you change jobs, see what happens to your 401(k). And for anything complicated, like backdoor Roth contributions, a tax professional is worth the fee.
Frequently asked questions
Is a 401(k) or IRA better?
Neither is better in every case. Get any 401(k) employer match first, then an IRA often offers better investment choice and lower fees, then return to the 401(k) for its higher limit.
Can I have a 401(k) and an IRA at the same time?
Yes. You can contribute to both in the same year, though a traditional IRA deduction may be limited if you're covered by a workplace plan and your income is above certain levels.
What are the 2026 limits for a 401(k) and IRA?
401(k): $24,500 plus catch-up from age 50. IRA: $7,500, or $8,600 if you're 50 or older.
What is the Roth IRA income limit for 2026?
The contribution phase-out range is $153,000–$168,000 for single filers and $242,000–$252,000 for married couples filing jointly.