401(k) vs Traditional IRA vs Roth IRA: 2026 Limits and How to Choose
A 401(k), a traditional IRA and a Roth IRA are all tax-advantaged ways to save for retirement in the US. They differ in who offers them, how much you can put in, and whether you get your tax break now or later. Here are the 2026 rules and a simple order for using them.
Key takeaways
- 2026 limits: $24,500 for a 401(k) and $7,500 for an IRA, with higher catch-up amounts from age 50.
- Traditional accounts give a tax break now and are taxed on withdrawal. Roth accounts are taxed now and grow tax-free.
- Always contribute enough to a 401(k) to collect any employer match first.
- Roth suits people who expect a higher tax rate in retirement; traditional suits people in high brackets now.
The three accounts at a glance
| 401(k) | Traditional IRA | Roth IRA | |
|---|---|---|---|
| Who offers it | Your employer | You open it at a bank or broker | You open it at a bank or broker |
| 2026 contribution limit | $24,500 | $7,500 combined across all IRAs | |
| Catch-up, age 50+ | +$8,000 (ages 60–63: +$11,250 instead) | +$1,100 | |
| Tax break | Pre-tax now (Roth 401(k) option often available) | Often deductible now | None now; tax-free later |
| Income limits | None | Deduction may phase out if you have a workplace plan | Phases out at $153,000–$168,000 (single) and $242,000–$252,000 (married filing jointly) |
| Employer match | Often | No | No |
The overall 2026 limit for all contributions to a 401(k), including your employer’s, is $72,000.
Traditional vs Roth: when do you want the tax break?
A traditional contribution reduces your taxable income this year. The money grows tax-deferred, and withdrawals in retirement are taxed as ordinary income. A Roth contribution is made with money that has already been taxed. It grows tax-free, and qualified withdrawals after age 59½ are tax-free.
The decision hinges on your tax rate now compared with your expected rate in retirement:
- Higher rate now than later: traditional usually wins. Common for people in the 24% bracket or above.
- Lower rate now than later: Roth usually wins. Common early in a career, in the 10% or 12% bracket.
- Unsure: splitting between both creates tax diversification, giving you flexibility over which account to draw from in retirement.
Our guide to marginal and effective tax rates explains which rate matters here: it is your marginal rate.
A sensible order for funding accounts
- 401(k) up to the full employer match. A 50% or 100% match is an instant return no investment can beat.
- Pay off high-interest debt such as credit cards.
- An IRA, often a Roth IRA, up to $7,500, for the wider investment choice and tax-free growth, if you are eligible.
- More 401(k) contributions, up to $24,500.
- A taxable brokerage account for anything beyond that.
If your plan has high fees or poor funds, steps 3 and 4 matter more. If you have a high-deductible health plan, a Health Savings Account (2026 limits: $4,400 self-only, $8,750 family) is also worth considering, because it can be tax-free going in and coming out for medical costs.
Enter your current balance, contribution and expected return to see how your retirement savings could grow, and test the effect of capturing the full match.
How much difference does it make?
Contributing $500 a month instead of $300 for 30 years at a 7% return grows to about $610,000 instead of about $366,000. If your employer matches 50% of the first 6% of a $75,000 salary, that adds $2,250 a year you would otherwise leave behind. Our guide to compound interest shows why starting early matters more than any of these choices.
Common mistakes
- Not collecting the full match. Check the formula in your plan documents.
- Cashing out when changing jobs. Roll the money over instead.
- Leaving contributions uninvested. Money in an IRA can sit in cash unless you choose investments.
- Contributing to a Roth IRA above the income limit. Excess contributions carry a penalty until corrected.
- Forgetting catch-up contributions once you turn 50.
These limits change every year. Check the IRS figures for the year you are contributing.
Frequently asked questions
Can I have a 401(k) and an IRA at the same time?
Yes. The 401(k) and IRA limits are separate. Having a workplace plan can limit whether your traditional IRA contribution is tax-deductible, depending on income, but it does not stop you contributing.
What if my income is too high for a Roth IRA?
In 2026, the ability to contribute phases out between $153,000 and $168,000 of modified adjusted gross income for single filers, and between $242,000 and $252,000 for married couples filing jointly. Many workplace plans offer a Roth 401(k), which has no income limit.
Can I take money out of a Roth IRA early?
Your own contributions can generally be withdrawn at any time without tax or penalty. Earnings withdrawn before age 59½ and before the account is five years old may be taxed and penalised.
What happens to my 401(k) if I change jobs?
It stays yours. You can usually leave it in the old plan, move it to your new employer’s plan, or roll it into an IRA. Cashing it out normally triggers tax and, under 59½, a 10% penalty.
Sources
This guide is general information to help you understand the numbers. It is not financial, tax or legal advice. Rates, limits and rules change, so check official sources or a qualified adviser before making a decision. Read our full disclaimer.