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Comparison · Finance

401(k) vs IRA

The classic funding-order question. The right answer is almost always: 401(k) up to the employer match → IRA to the max → 401(k) the rest. Here's why, with the math.

Factor 401(k) IRA
2026 contribution limit $23,500 ($31,000 if 50+) $7,000 ($8,000 if 50+)
Employer match Yes (typical 3–6% of salary) No
Investment options Limited menu (~15–30 funds) Anything your broker offers
Expense ratios Plan-dependent; often higher You pick — can be near zero
Income limits for deduction (Trad.) No income cap on deduction Phased out above $77K single (covered)
Income limits for Roth contribution None (Roth 401(k) has no income cap) $150K–$165K single (2026)
Loans against balance Yes, up to 50% / $50K No
Required min distributions (RMDs) Yes from age 73 (both Trad. + Roth 401(k)) Only Traditional IRA (Roth IRA never)

Choose 401(k) when…

You have an employer match — capture every dollar of it before doing anything else. The match is an instant 50–100% return on contributions, which no IRA can beat. Above the match, prefer 401(k) only if your plan has good low-cost funds.

Choose IRA when…

You've already captured the full employer match in the 401(k). Now max the IRA (better investment options, lower fees) before going back to the 401(k) for additional contributions.

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Frequently asked questions

What's the optimal funding order?

1) 401(k) up to full match. 2) HSA (if eligible — best tax treatment in the code). 3) Roth IRA / IRA to the $7K limit. 4) Back to 401(k) up to $23.5K. 5) Taxable brokerage. This order maximizes tax benefits and investment flexibility.

My 401(k) only has bad funds — should I still use it?

Get the match (free 50–100% return beats any expense ratio drag). Above the match, redirect to IRA. If your 401(k) charges over 1% in expenses, the IRA wins for marginal dollars.

Can I roll my 401(k) into an IRA?

Yes, when you change jobs. Rolling old 401(k) balances into a Traditional IRA gives you unlimited investment options and lower expense ratios. But it can block the backdoor Roth IRA strategy (pro-rata rule) — high earners should think twice.

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