Key takeaways
- 2026 limits: $24,500 for a 401(k) (plus $8,000 catch-up at 50+, or $11,250 at ages 60–63) and $7,500 for an IRA (plus $1,100 catch-up at 50+).
- A traditional 401(k) cuts your taxes now; a Roth IRA gives tax-free withdrawals in retirement.
- Roth IRA eligibility phases out at $153,000–$168,000 of modified AGI (single) and $242,000–$252,000 (married filing jointly).
- New in 2026: if you earned more than $150,000 in FICA wages from your employer in 2025, your 401(k) catch-up contributions must go in as Roth.
You don’t have to choose between a 401(k) and a Roth IRA; most people should use both. Start by contributing enough to your 401(k) to get the full employer match, then fund a Roth IRA if you’re eligible, then go back and raise your 401(k) contributions. The right balance depends on your match, your income and whether you expect a higher or lower tax rate in retirement.
A 401(k) is a workplace plan with a high contribution limit and often free matching money. A Roth IRA is an account you open yourself, with more investment choices and tax-free withdrawals later. Below are the 2026 rules, worked examples with real numbers, and a simple order to follow.
2026 contribution limits at a glance
| Limit | 401(k) | IRA (traditional or Roth) |
|---|---|---|
| Standard contribution | $24,500 | $7,500 |
| Catch-up, age 50+ | $8,000 (total $32,500) | $1,100 (total $8,600) |
| Super catch-up, ages 60–63 | $11,250 (total $35,750) | Not applicable |
| Roth income limit (single, head of household) | None for Roth 401(k) | Phases out $153,000–$168,000 |
| Roth income limit (married, joint) | None for Roth 401(k) | Phases out $242,000–$252,000 |
The 401(k) and IRA limits are separate. A 52-year-old could put up to $41,100 into the two combined in 2026 ($32,500 + $8,600), before any employer match.
Traditional IRA deductions have their own limits if you’re covered by a workplace plan: the deduction phases out at $81,000–$91,000 of modified AGI for single filers and $129,000–$149,000 for married couples filing jointly when the contributor is covered. For a full side-by-side of the two IRA types, see our traditional vs. Roth IRA guide.
401(k) vs. Roth IRA: key differences
| Feature | Traditional 401(k) | Roth IRA |
|---|---|---|
| Who offers it | Your employer | You open it at a brokerage or bank |
| Tax treatment | Pre-tax contributions; taxed when withdrawn | After-tax contributions; qualified withdrawals tax-free |
| Employer match | Often available | No |
| Investment choices | Limited to the plan’s menu | Almost any stock, bond or fund |
| Required minimum distributions | Yes, starting at 73 (75 if born in 1960 or later) | None during the owner’s lifetime |
| Early access | 10% penalty plus tax before 59½, with exceptions | Contributions can be withdrawn anytime; earnings have rules |
| Income limit to contribute | None | Yes (see table above) |
Many employers also offer a Roth 401(k), which combines the 401(k)’s high limit with Roth-style tax-free withdrawals, has no income limit and, since 2024, no required minimum distributions during your lifetime.
Worked examples
1. The employer match comes first
You earn $70,000 and your employer matches 100% of contributions up to 4% of pay. Contributing $2,800 (4%) gets you another $2,800 from your employer, an instant 100% return. No other account can match that, so capture it before anything else.
2. Traditional vs. Roth: same money, different tax timing
You’re in the 22% bracket and have $6,000 of pre-tax income to save. In a traditional account, all $6,000 goes in and you save $1,320 in tax this year. In a Roth, you pay that tax first and invest $4,680. Assume 7% annual growth for 30 years:
| Tax rate in retirement | Traditional (after tax) | Roth (tax-free) | Winner |
|---|---|---|---|
| 12% | $40,192.71 | $35,625.35 | Traditional |
| 22% (same as today) | $35,625.35 | $35,625.35 | Tie |
| 24% | $34,711.88 | $35,625.35 | Roth |
The takeaway: the choice comes down to whether your tax rate will be higher or lower later. If you’re early in your career and expect to earn more, Roth usually wins. If you’re in a high bracket now, traditional often does.
3. Partial Roth IRA contribution in the phase-out range
You’re single with modified AGI of $160,000, which is $7,000 into the $15,000 phase-out range. Your Roth IRA limit is reduced by 7,000 ÷ 15,000, or about 46.7%, leaving $4,000 you can contribute directly. Above $168,000, you can’t contribute directly at all.
Tip: if your income lands near the phase-out, wait until you know your final income (you have until the April tax deadline) or contribute to a traditional IRA and ask a tax professional about converting it, often called a “backdoor” Roth.
Which should you fund first?
- Contribute enough to get the full employer match.
- Fund a Roth IRA if you’re eligible, up to $7,500 ($8,600 if 50+).
- Return to the 401(k) and increase contributions toward the $24,500 limit.
- Consider an HSA if you have a high-deductible health plan; see HSA vs. FSA.
- Use a taxable brokerage account once tax-advantaged space is used.
Before you invest: pay off high-interest debt and keep three to six months of expenses in a high-yield savings account. Credit cards averaged about 22.36% interest in August 2026, more than investments typically earn.
New 2026 rule: Roth catch-ups for higher earners
Under SECURE 2.0, starting in 2026, workers age 50 and older whose FICA wages from their employer exceeded $150,000 in the prior year must make any 401(k) catch-up contributions as Roth (after-tax). Your regular $24,500 can still be pre-tax. If your plan doesn’t offer a Roth option, you may not be able to make catch-up contributions at all, so check with HR.
Traditional vs. Roth: how to decide
- Choose Roth if your tax rate is lower today than you expect in retirement, common for younger workers.
- Choose traditional if you’re in a high bracket now and expect a lower one later.
- Split contributions if you’re unsure. Having both pre-tax and Roth money lets you manage your taxable income in retirement.
- Lower-income savers may also qualify for the Saver’s Credit (2026 income limits: $40,250 single, $60,375 head of household, $80,500 married filing jointly).
What to invest in inside the account
The account is just the container. Low-cost, diversified funds such as broad index funds or target-date funds are a common starting point. Learn the basics in our stock market guide for beginners, see how regular investing works with dollar-cost averaging, and compare automated options in our robo-advisors guide. Estimate whether you’re on track with the retirement calculator.
Common mistakes
- Not contributing enough to get the full match.
- Cashing out a 401(k) when changing jobs instead of rolling it over.
- Contributing to a Roth IRA when your income is above the limit. Excess contributions face a 6% penalty each year until corrected.
- Leaving contributions in cash instead of investing them.
- Forgetting the 60–63 super catch-up window, which applies only in the years you’re 60, 61, 62 or 63.
If you’re in your 20s, read building wealth before 30 for a simple starter plan.
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Frequently asked questions
Can I have both a 401(k) and a Roth IRA?
Yes. The limits are separate, so in 2026 you could contribute up to $24,500 to a 401(k) and $7,500 to an IRA, plus catch-up amounts if you’re eligible.
What if I earn too much for a Roth IRA?
You can still use a Roth 401(k) if your employer offers one, which has no income limit, or ask a tax professional about a backdoor Roth IRA.
When can I withdraw from a Roth IRA tax-free?
Contributions can come out at any time. Earnings are tax-free and penalty-free once you’re 59½ and your first Roth IRA has been open at least five years, with some exceptions.
What happens to my 401(k) if I leave my job?
You can usually leave it in the old plan, roll it into your new employer’s plan or roll it into an IRA. A direct rollover avoids taxes and penalties.
Is a Roth 401(k) better than a Roth IRA?
Neither is better across the board. A Roth 401(k) allows much larger contributions and has no income limit; a Roth IRA offers more investment choices and easier access to contributions. Many people use both.
Sources: IRS IR-2025-111 and Notice 2025-67 (2026 limits, phase-outs, Saver’s Credit and $150,000 Roth catch-up wage threshold, November 2025); IRS final catch-up regulations under SECURE 2.0 (2025); Federal Reserve credit card interest data (August 2026, via FRED). Calculations by FinInfoBlog. This article is for educational purposes and isn’t financial, tax or investment advice. Consult a tax professional about your situation.
Written by Chanchala
Founder & Lead Writer · B.Sc. Mathematics (Honors) · 9 years in banking & lending
Chanchala is the founder and lead writer of FinInfoBlog. She holds a B.Sc. in Mathematics (Honors) and has 9 years of experience in banking and lending. She writes plain-English guides on savings, CDs, loans, credit and personal finance for U.S. readers, and makes sure every example shows the math behind the money decision. How we research and fact-check.