401(k) vs IRA: Which Retirement Account Is Right for You?

The Big Picture

Both 401(k)s and IRAs are powerful tools for retirement savings, but they work differently. Understanding their differences helps you maximize your tax advantages and grow your wealth faster.

Side-by-Side Comparison

Feature	401(k)	Traditional IRA	Roth IRA
2026 Limit	$23,500	$7,000	$7,000
Catch-up (50+)	+$7,500	+$1,000	+$1,000
Tax Benefit	Pre-tax	Pre-tax	After-tax
Employer Match	Yes	No	No
Income Limits	None	Deduction limits	Yes
RMDs	Yes (72+)	Yes (72+)	No

When to Prioritize a 401(k)

Choose a 401(k) first when:

Your employer offers matching contributions
You want to reduce your current taxable income
You’re in a high tax bracket now

TIP

The employer match is the single most important factor. A 50% match on 6% of salary is an immediate 50% return — no investment can beat that.

When to Prioritize an IRA

Choose an IRA when:

You’ve maxed out your employer match
You want more investment options (401k plans are limited)
You prefer a Roth structure for tax-free growth

The Optimal Strategy

For most people, the best approach is:

Contribute to 401(k) up to the employer match
Max out a Roth IRA ($7,000)
Return to 401(k) and increase contributions
If you still have money to invest, open a taxable brokerage account

WARNING

Early withdrawals from retirement accounts (before age 59½) typically incur a 10% penalty plus income taxes. Only withdraw in true emergencies.

What About Self-Employed?

If you’re self-employed, consider:

Solo 401(k): Higher contribution limits (up to $69,000 in 2026)
SEP-IRA: Simple setup, up to 25% of net self-employment income
SIMPLE IRA: For businesses with fewer than 100 employees