IRA vs 401(k) Comparison 2026: Contribution Limits, Tax Benefits & Which to Choose

Understanding the Basics

The 401(k) and IRA are the two pillars of American retirement savings. Both offer tax advantages, but they work differently. Understanding these differences is crucial for building an optimal retirement strategy.

401(k) Overview

A 401(k) is an employer-sponsored retirement plan. Your employer sets it up, chooses the investment options, and often contributes matching funds. Money comes directly from your paycheck before you ever see it.

Key characteristics:

• Only available through employers
• Higher contribution limits than IRAs
• Limited investment choices (whatever the plan offers)
• Often includes employer matching
• Automatic payroll deductions

IRA Overview

An Individual Retirement Account (IRA) is a personal account you open yourself at any brokerage. You have complete control over investments, and anyone with earned income can open one.

Key characteristics:

• Available to anyone with earned income
• Lower contribution limits than 401(k)s
• Unlimited investment options
• No employer involvement or matching
• You manage contributions yourself

Quick Comparison

Feature	401(k)	IRA
Provider	Employer	You (any brokerage)
2026 contribution limit	$23,500	$7,000
Catch-up (50+)	$7,500	$1,000
Employer match	Yes (if offered)	No
Investment options	Limited to plan	Nearly unlimited
Roth option	Yes (if offered)	Yes

2026 Contribution Limits

The IRS sets different limits for 401(k)s and IRAs. Here's what you can contribute in 2026:

401(k) Limits

Category	2026 Limit	Notes
Employee contribution (under 50)	$23,500	Your contribution only
Catch-up (age 50-59)	+$7,500	Total: $31,000
Super catch-up (age 60-63)	+$11,250	Total: $34,750
Total with employer (under 50)	$70,000	Employee + employer combined
Total with employer (50+)	$77,500	Includes catch-up

IRA Limits

Category	2026 Limit	Notes
Under age 50	$7,000	Total for all IRAs combined
Age 50 and older	$8,000	Includes $1,000 catch-up
Spousal IRA	$7,000	For non-working spouse

Combined Maximum Savings

If you max out both accounts, you can save substantial amounts each year:

Age	401(k) Max	IRA Max	Total
Under 50	$23,500	$7,000	$30,500
50-59	$31,000	$8,000	$39,000
60-63	$34,750	$8,000	$42,750

Add employer matching to your 401(k), and the total grows even larger. Someone age 35 with a 4% employer match on a $100,000 salary could save $30,500 + $4,000 match = $34,500 annually in tax-advantaged accounts.

Tax Treatment Comparison

Both 401(k)s and IRAs come in two flavors: Traditional and Roth. The tax treatment depends on which you choose.

Traditional Accounts

Tax Event	Traditional 401(k)	Traditional IRA
Contributions	Pre-tax (reduces income)	Tax-deductible*
Growth	Tax-deferred	Tax-deferred
Withdrawals	Taxed as income	Taxed as income
RMDs at 73	Yes	Yes

*Traditional IRA deductions have income limits if you or your spouse have a workplace retirement plan.

Traditional IRA Deduction Limits (2026)

Situation	Full Deduction	Phase-Out Range
Single, covered by workplace plan	Under $79,000	$79,000 - $89,000
Married, both covered	Under $126,000	$126,000 - $146,000
Married, only spouse covered	Under $236,000	$236,000 - $246,000
Not covered by any plan	No limit	N/A

Roth Accounts

Tax Event	Roth 401(k)	Roth IRA
Contributions	After-tax	After-tax
Growth	Tax-free	Tax-free
Withdrawals	Tax-free	Tax-free
RMDs at 73	No (since 2024)	No

Roth IRA Income Limits (2026)

Filing Status	Full Contribution	Phase-Out	No Contribution
Single	Under $150,000	$150,000-$165,000	Over $165,000
Married Filing Jointly	Under $236,000	$236,000-$246,000	Over $246,000

Note: Roth 401(k)s have NO income limits. High earners who can't contribute to a Roth IRA directly can still use a Roth 401(k).

Investment Options

This is where the two accounts differ dramatically.

401(k) Investment Options

Your 401(k) investment choices are limited to whatever your employer's plan offers. Typical plans include 15-30 options:

• Target date funds
• Index funds (S&P 500, Total Stock Market)
• Actively managed funds
• Bond funds
• International funds
• Company stock (sometimes)
• Stable value fund

Some plans have excellent low-cost options. Others have only expensive actively managed funds. You're stuck with what the plan offers.

IRA Investment Options

With an IRA at a brokerage like Fidelity, Vanguard, or Schwab, you can invest in virtually anything:

• Any stock (individual shares)
• Any ETF
• Any mutual fund
• Bonds (individual or funds)
• REITs
• Options (at some brokerages)
• CDs

Investment Comparison

Factor	401(k)	IRA
Selection	15-30 options	Thousands of options
Individual stocks	Usually no	Yes
ETFs	Sometimes	Yes
Low-cost index funds	Plan dependent	Always available
Expense ratios	Varies widely	Your choice

If your 401(k) has high-fee funds, contribute enough to get the employer match, then prioritize your IRA where you control costs.

Employer Matching

The employer match is the 401(k)'s secret weapon. It's free money that IRAs can never offer.

Common Matching Formulas

Match Type	You Contribute	Employer Contributes	Effective Return
100% up to 3%	3% of salary	3% of salary	100%
100% up to 4%	4% of salary	4% of salary	100%
50% up to 6%	6% of salary	3% of salary	50%
100% up to 6%	6% of salary	6% of salary	100%

Real Dollar Example

Let's say you earn $80,000 with a 4% match:

Your Contribution	Your Dollars	Employer Match	Total
0%	$0	$0	$0
2%	$1,600	$1,600	$3,200
4%	$3,200	$3,200	$6,400
6%	$4,800	$3,200	$8,000
10%	$8,000	$3,200	$11,200

Not capturing the full match leaves $3,200 per year on the table. Over 30 years at 7% returns, that's nearly $324,000 in lost wealth.

Vesting Schedules

Employer contributions may vest over time:

• Immediate: You keep 100% from day one
• Cliff vesting: 0% until 3 years, then 100%
• Graded vesting: 20% per year over 5-6 years

Know your vesting schedule before changing jobs. Leaving early can forfeit employer contributions.

Withdrawal Rules

Both accounts have rules about when and how you can access funds.

General Rules

Rule	401(k)	IRA
Penalty-free age	59½	59½
Early withdrawal penalty	10% + taxes	10% + taxes
Loans allowed	Yes (if plan allows)	No
Hardship withdrawals	Yes (limited)	No formal provision
RMD age	73	73 (Traditional only)

Exceptions to 10% Penalty

Both account types have penalty exceptions:

• Death or disability: Penalty-free at any age
• Medical expenses: Exceeding 7.5% of AGI
• Substantially equal periodic payments: Rule 72(t)

IRA-only exceptions:

• First home purchase: Up to $10,000 lifetime
• Higher education: Qualified expenses
• Health insurance: If unemployed

401(k)-only exceptions:

• Age 55 separation: Leave job at 55+ (only that employer's plan)
• Qualified domestic relations order: Divorce settlements

Roth Withdrawal Ordering

Roth IRAs have special rules. Withdrawals come out in this order:

1. Contributions (always tax and penalty-free)
2. Conversions (5-year rule for penalty-free before 59½)
3. Earnings (tax and penalty-free if qualified)

This makes Roth IRAs flexible—you can access contributions anytime.

Optimal Contribution Strategy

Here's how to prioritize your retirement contributions for maximum benefit:

The Priority Ladder

1. 401(k) up to employer match: This is free money. 100% instant return. Always do this first.
2. HSA (if eligible): Triple tax advantage beats everything else.
3. Max out IRA ($7,000): Full investment control, lower costs.
4. Max out 401(k) ($23,500): Complete your tax-advantaged savings.
5. Mega backdoor Roth (if available): After-tax 401(k) contributions.
6. Taxable brokerage: Additional savings with no limits.

Example: $15,000 Annual Savings Budget

Priority	Account	Amount	Running Total
1	401(k) to 4% match	$3,200	$3,200
2	HSA max	$4,300	$7,500
3	Roth IRA	$7,000	$14,500
4	Additional 401(k)	$500	$15,000

When to Deviate

Adjust the priority ladder if:

• 401(k) has exceptional funds: Institutional share classes with 0.01% expense ratios may beat typical IRA options
• High income, no Roth IRA access: Prioritize Roth 401(k) contributions instead
• Mega backdoor Roth available: Can add up to $46,500 more in Roth savings
• Need tax deduction now: Prioritize Traditional 401(k)

Age-Based Strategy

Age	Focus	Roth vs Traditional
20s-30s	Maximize total savings	Favor Roth (lower tax bracket now)
40s	Balance and optimize	Split or Traditional (peak earnings)
50s	Catch-up contributions	Tax diversification
60+	Roth conversions, super catch-up	Strategic conversions

Your Action Plan

Step 1: Know Your Numbers

1. Find your employer's matching formula (HR or benefits portal)
2. Calculate the minimum contribution to get full match
3. Check your 401(k) investment options and expense ratios
4. Determine your modified adjusted gross income for IRA limits

Step 2: Optimize Your Current Contributions

Current Situation	Action
Not getting full match	Increase 401(k) contribution immediately
Getting match, no IRA	Open IRA, start contributing
Have both, not maxed	Follow priority ladder with available funds
Maxing both	Check mega backdoor Roth availability

Step 3: Review and Adjust Annually

• Every January, increase 401(k) contribution rate
• After raises, increase savings percentage
• At 50, add catch-up contributions
• Review investment allocations yearly
• Rebalance across all accounts

The Bottom Line

You don't have to choose between a 401(k) and an IRA—most people should use both. The 401(k) gives you higher limits and employer matching. The IRA gives you investment freedom and control.

Start with the employer match (free money), then build from there. Every dollar in tax-advantaged accounts is a dollar working harder for your future.

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This article is for informational purposes only and does not constitute tax, legal, or investment advice. Retirement account rules are complex and subject to change. Consult with a qualified tax professional or financial advisor for guidance specific to your situation. Investment returns are not guaranteed, and you may lose money.