IRA vs 401(k): Key Differences and How to Use Both

IRAs and 401(k)s are both tax-advantaged retirement accounts — but they work differently, have different limits, and serve different purposes. Most people should use both.

Side-by-side comparison

Feature	401(k)	Traditional IRA	Roth IRA
2026 contribution limit	$23,500 (+$7,500 catch-up)	$7,000 (+$1,000 catch-up)	$7,000 (+$1,000 catch-up)
Income limit to contribute	None	None (deductibility limited)	$161,000 single / $240,000 MFJ
Employer match	Yes	No	No
Investment options	Limited to plan menu	Unlimited	Unlimited
RMDs at 73	Yes	Yes	No (Roth IRA only)
Loan provision	Often yes	No	No

The optimal contribution sequence

1. 401(k) to employer match: Never leave free money behind.
2. HSA max (if HDHP-eligible): Triple tax advantage beats everything else.
3. Roth IRA to max ($7,000): Tax-free growth, no RMDs, flexible access to contributions.
4. 401(k) to max ($23,500): High-income earners: traditional 401(k) for current tax savings.
5. Taxable brokerage: After maxing all tax-advantaged accounts.

IRA advantages over 401(k)

• Unlimited investment options (vs plan-limited 401k menu)
• Potential lower expense ratios (choose your own funds)
• More flexible withdrawal options (Roth contributions anytime)
• Easier to manage during job transitions