401(k), Traditional IRA and Roth IRA: how they differ (2026 limits)
Where you save for retirement changes your taxes now and later. Here are the basics and the 2026 contribution limits.
Sourced from official pages · Updated September 30, 2026💡 Key takeaways
- A 401(k) is employer-sponsored ($24,500 limit in 2026); a Traditional or Roth IRA is opened by you ($7,500 limit).
- Traditional contributions are pre-tax; Roth contributions are after-tax with tax-free qualified withdrawals.
- Capture any employer match first.
- Roth IRA eligibility phases out at higher incomes.
401(k)
An employer-sponsored plan. Traditional 401(k) contributions are pre-tax; many plans also offer a Roth 401(k). Employers may add matching contributions, often subject to a vesting schedule. 2026 employee limit: $24,500, plus an $8,000 catch-up at age 50 or older (and $11,250 for ages 60–63 if the plan allows).
Traditional IRA
You open it yourself. Contributions may be tax-deductible depending on income and whether you or your spouse are covered by a workplace plan. Withdrawals in retirement are taxed as ordinary income. 2026 limit: $7,500 ($8,600 with the age-50+ catch-up of $1,100).
Roth IRA
Contributions are made with after-tax money; qualified withdrawals are tax-free. Income limits can reduce or eliminate your ability to contribute directly; check IRS.gov for the current limits. It shares the same $7,500 combined IRA limit with any Traditional IRA contributions.
How to choose
A common rule of thumb: if you expect a higher tax rate in retirement, Roth can help; if a lower rate, Traditional can help. Capturing any employer match first is usually the priority. Compare both with the Traditional vs Roth calculator and the 401(k) calculator.
Side-by-side
| Traditional 401(k)/IRA | Roth 401(k)/IRA | |
|---|---|---|
| Tax on contributions | Pre-tax (deductible) | After-tax |
| Tax on qualified withdrawals | Ordinary income | Tax-free |
| Required minimum distributions | Yes | Roth IRA: no during lifetime |
| Best when | You expect a lower tax rate in retirement | You expect a higher tax rate later |
Employer match
A match is part of your pay. If an employer matches 50% of your contributions up to 6% of salary, an $80,000 earner contributing 6% ($4,800) would receive $2,400 (hypothetical). Contribute at least enough to get the full match.
A simple order to follow
- Contribute enough to get the full employer match.
- Consider an HSA if eligible.
- Fund a Roth or Traditional IRA.
- Return to the 401(k) up to the limit.
How each account is taxed, step by step
- Traditional 401(k): contributions come out of your pay before income tax, so your taxable income is lower this year. The money grows without yearly tax, and withdrawals in retirement are taxed as ordinary income.
- Roth 401(k): contributions are made from pay that has already been taxed. Qualified withdrawals, including the growth, are tax-free.
- Traditional IRA: contributions may be deductible depending on your income and whether you or your spouse are covered by a workplace plan; withdrawals are taxed as ordinary income.
- Roth IRA: after-tax contributions, tax-free qualified withdrawals, and income limits on who can contribute directly.
Which to use when: a decision guide
| Your situation | Consider | Why |
|---|---|---|
| Your employer offers a match | Contribute at least enough to get the full match | The match is part of your pay |
| You expect a lower tax rate in retirement than now | Traditional contributions | You deduct at a higher rate and pay tax later at a lower one |
| You expect a higher tax rate later, or want tax-free income and no RMDs | Roth contributions | You pay tax now and avoid it on qualified withdrawals |
| You are unsure | Split between Traditional and Roth | Gives tax diversification in retirement |
| Your income is above the Roth IRA limit | Roth 401(k) if offered, or consider learning about a “backdoor” approach with a tax professional | Roth 401(k) has no income limit for contributions |
Rules to know before you contribute
- Early withdrawals: taking money out before the age set by the IRS can trigger a penalty tax on top of income tax, with limited exceptions.
- Required minimum distributions: Traditional accounts require withdrawals starting at a certain age; see RMDs.
- Vesting: your own contributions are always yours, but an employer’s match may vest over time.
- Rollovers: when you leave a job you can generally keep the account, roll it into an IRA or roll it into a new employer’s plan.
A simple annual checklist
- Confirm you are getting the full employer match.
- Check your contribution rate against the 2026 limits.
- Review the fees of your funds (see expense ratios).
- Rebalance if your mix has drifted from your plan.
- Update beneficiaries.
⚠️ Common mistakes to avoid
- Not capturing the full match.
- Ignoring vesting schedules when changing jobs.
- Contributing to a Roth IRA above the income limit.
- Leaving old 401(k)s scattered and forgotten.
- Leaving an old employer’s 401(k) untouched and forgotten.
- Investing without checking fund fees inside the account.
🛠️ Try it yourself
❓ Frequently asked questions
Can I have both a 401(k) and an IRA?
Yes.
Which is better, Roth or Traditional?
It depends on your current and expected future tax rates; compare in the calculator.
What happens to my 401(k) if I leave a job?
You can generally leave it, roll it into an IRA or a new plan; check for fees and vesting.
Should I contribute to my 401(k) or an IRA first?
A common approach is to contribute enough to a 401(k) to get the full match, then consider an IRA or HSA, then return to the 401(k) up to its limit. Your situation may differ.
Can I contribute to a Roth IRA if I have a 401(k)?
Yes, subject to the Roth IRA income limits.
Are Roth 401(k) matches Roth too?
Rules vary by plan; check with your plan administrator on how matches are treated.
📚 Sources
This guide is general information, not financial, tax or legal advice. Rules and limits change; confirm with the sources above or a licensed professional.