Short answer: if your employer matches 401(k) contributions, put money in the 401(k) first — but only up to the match. Then fund an IRA ($7,500 in 2026, or $8,600 if you’re 50 or older), because it usually gives you cheaper funds and more investment choices. Only after the IRA is maxed should you go back and push the 401(k) toward its $24,500 limit. The order matters because the match is a guaranteed instant return no market can beat.
The 2026 limits, side by side
The IRS raised the caps for 2026 (Notice 2025-67), and the gap between the two accounts is the reason the order exists at all:
| 401(k) | IRA (traditional or Roth) | |
|---|---|---|
| 2026 limit (under 50) | $24,500 | $7,500 |
| Catch-up (50+) | +$8,000 → $32,500 | +$1,100 → $8,600 |
| Tax treatment choice | Often only one (your plan’s choice) | Yours: traditional or Roth |
Two rules that trip people up: the 401(k) and IRA limits are completely independent — you can max out both in the same year. And IRA contributions across all your IRAs share one $7,500 cap; you can’t put $7,500 in a traditional IRA and another $7,500 in a Roth.
Step 1: the 401(k) up to the employer match
Suppose you earn $80,000 and your employer matches 50% of your contributions up to 6% of your salary. Contributing 6% costs you $4,800 a year — and the employer adds $2,400 on top, a guaranteed 50% return on your contribution. No stock pick, no market timing, and no IRA can match that.
Over 30 years at a 7% average return, that combination compounds into $680,118 — $144,000 of your own contributions plus $72,000 of employer money, with growth doing the rest. Skip the match and you’re leaving that $72,000 (plus its growth) on the table forever. That’s why the 401(k) is first, even though the IRA has advantages on its own merits. See our explainer on how 401(k) accrual actually works for the mechanics.
Step 2: the IRA — cheaper funds, more choice
Once you’ve captured the full match, the IRA usually beats the 401(k) for your next dollars. Most employer plans offer a short menu of funds, and some charge fees of 0.5% or more. An IRA you open yourself at any brokerage gives you the entire market — including index funds that cost 0.03% a year.
Maxing the IRA at $7,500 a year for 30 years at 7% grows to $708,456. Small fee differences compound: on a growing balance, paying 0.5% instead of 0.05% can quietly cost six figures over a career. Run your own numbers with our compound interest calculator to see how fee drag scales with time.
Step 3: back to the 401(k) for the big limit
Once the IRA is full, the 401(k) is your only remaining tax-advantaged lane — and it’s a wide one at $24,500. A saver who maxes the 401(k) every year for 30 years at 7% ends with roughly $2.31 million from contributions alone. Whether you put that money in pre-tax (traditional) or after-tax (Roth) depends on your tax situation now versus retirement — and on whether your plan even offers a Roth option.
The income limits that decide Roth vs traditional IRA
The IRA’s flexibility comes with income tests, and they only apply to the IRA:
- Roth IRA direct contributions phase out in 2026 at $153,000–$168,000 of modified adjusted gross income for single filers, and $242,000–$252,000 for married couples filing jointly. Above that, direct Roth contributions are off the table.
- Traditional IRA deductibility only phases out if you (or your spouse) are covered by a workplace plan. For 2026, the deduction phases out at $81,000–$91,000 for singles and $129,000–$149,000 for joint filers covered at work. If nobody in the household has a workplace plan, the deduction is available at any income.
One clean rule: having a 401(k) never blocks you from contributing to a Roth IRA — only your income does. And you can always contribute to a 401(k) at any income level; it has no phase-outs at all. The IRS and investor.gov both publish plain-language explainers of these rules if you want to double-check your situation.
What if you have no employer plan?
Then the order flips. With no match to chase, lead with the IRA — it’s free to open, cheap to hold, and gives you the Roth-or-traditional choice your 401(k) would have made for you. Fund it to the $7,500 limit first. If you still have savings to direct after that, you don’t have a 401(k) to fall back on, so look at other options: an HSA (if you’re on a high-deductible health plan), then a regular taxable brokerage account. The priority order is about using every tax-advantaged dollar available to you, not about loving one account type.
Frequently asked questions
Can I max out both a 401(k) and an IRA in the same year?
Yes. The limits are independent — $24,500 to a 401(k) and $7,500 to an IRA in 2026 ($32,500 and $8,600 respectively if you’re 50 or older). Nothing about contributing to one reduces what you can contribute to the other, and contributing to a 401(k) doesn’t disqualify you from a Roth IRA — only your income does.
Is the employer match really worth more than lower IRA fees?
Almost always, yes. A typical match is 50–100% of your contribution up to a salary percentage — an instant 50–100% return. IRA fee savings of a few tenths of a percent take decades to approach that. Capture the full match first, then chase the lower fees with your IRA dollars.
Should my IRA be Roth or traditional?
If you’re early in your career and expect to earn more later, Roth usually wins — you pay tax at today’s lower rate and withdraw tax-free later. If you’re at or near your peak earnings, traditional (pre-tax) usually wins because the deduction is worth more. If your income is too high for a direct Roth contribution, the traditional IRA may be non-deductible — in that case many savers use a backdoor Roth conversion.
What happens to my 401(k) if I leave my job?
Nothing bad — the money is still yours, and the tax shelter stays intact. You can leave it in the old plan, roll it into your new employer’s 401(k), or roll it into an IRA (which often unlocks cheaper funds). Don’t cash it out: early withdrawals before 59½ face income tax plus a 10% penalty, and you can never replace the tax-advantaged space you burned.