The Right Order
Which to Fund First — The 4-Step Priority Order
Most financial experts agree on this contribution order. It's not about picking one account over the other — it's about capturing free money before anything else.
If your employer matches contributions, contribute at least enough to get the full match. A 50% match up to 6% of salary is an immediate 50% return on your money.
🎁 Free money — never leave this on the tableAfter capturing the match, fund your IRA up to the $7,500 limit ($8,600 if 50+). IRAs offer more investment flexibility and Roth IRAs have no RMDs.
📈 Maximum investment flexibility and Roth accessReturn to your 401(k) and contribute up to the full $24,500 limit. This captures the large tax-deferred space even if the plan's investment options are limited.
💰 Large tax-deferred space ($24,500 vs $7,500 IRA)If you've maxed both, a taxable brokerage account offers unlimited contributions, no penalties, and long-term capital gains tax rates.
🏦 Unlimited — no IRS contribution limitsSide-by-Side
Full Feature Comparison
| Feature | 401(k) | IRA (Traditional / Roth) |
|---|---|---|
2026 Contribution Limit |
$24,500 | $7,500 |
Age 50+ Catch-Up |
+$8,000 | +$1,100 |
SECURE 2.0 Super Catch-Up (60–63) |
+$11,250 | None |
Employer Match |
✓ Often offered | No |
Tax on Contribution |
Pre-tax (Trad.) or After-tax (Roth 401k) | Pre-tax if deductible (Trad.) / After-tax (Roth) |
Tax on Qualified Withdrawal |
Taxed as income (Trad.) / Tax-free (Roth) | Taxed as income (Trad.) / Tax-free (Roth) |
Income Limit to Contribute |
✓ None | Roth: phases out $153,000–$168,000 (Single) |
Traditional IRA Deduction Limit If covered by 401k at work |
N/A | Phase-out $81,000–$91,000 (Single) |
Investment Options |
Limited to plan's menu (typically 15–30 funds) | ✓ Any brokerage — stocks, ETFs, REITs, etc. |
Early Withdrawal (before 59½) |
10% penalty + taxes on full amount | Traditional: same; Roth: contributions anytime |
Required Minimum Distributions |
Traditional: age 73; Roth 401k: none (since 2024) | Traditional: age 73; Roth IRA: never |
Loan Option |
Often — up to 50% of balance / $50k | No loans |
Portability |
Roll to new 401k or IRA on job change | ✓ Always portable — stays with you |
Contribution Deadline |
December 31 of tax year | Tax filing deadline (April 15, no extension) |
Strengths & Weaknesses
Pros & Cons
- 3.3× higher contribution limit — $24,500 vs $7,500
- Employer match — effectively free money
- No income limits to contribute
- SECURE 2.0 super catch-up ($11,250 at 60–63)
- Automatic payroll deductions — easy to be consistent
- Loan provision if needed
- ERISA protections from creditors
- Investment options limited to what plan offers
- Plan quality varies widely — some have poor, high-fee funds
- Traditional 401k RMDs required at 73
- Less flexible for early access
- Full investment flexibility — any asset at any brokerage
- Roth IRA: tax-free withdrawals AND no RMDs
- Roth IRA contributions withdrawable anytime without penalty
- Later contribution deadline (April 15 of following year)
- Not tied to employer — always yours
- Great estate planning via Roth IRA (tax-free inheritance)
- Lower contribution limit — only $7,500 per year
- No employer match
- Roth IRA has income limits (phase-out starts at $153,000 single)
- Traditional IRA deductibility limited if you have a workplace plan
FAQ
Common Questions
No — you can contribute to both in the same year. The limits are completely separate. However, having a 401(k) does make you "covered by a workplace plan," which may limit the deductibility of your Traditional IRA contribution depending on your income. Roth IRA eligibility is unaffected by 401(k) participation (only MAGI matters).
If you max both: $24,500 (401k) + $7,500 (IRA) = $32,000. With catch-up at 50+: $32,500 + $8,600 = $41,100. With the 60–63 super catch-up: $35,750 + $8,600 = $44,350. Employer contributions to the 401k are on top of these amounts.
Yes. IRA contributions for 2025 can be made until April 15, 2026 (the tax filing deadline). This gives you extra time to fund your IRA even after the calendar year ends. Note: 401(k) contributions must be made during the calendar year — by December 31.
Still contribute up to the employer match — even bad investment options are worth using for free match money. After capturing the match, prioritize your IRA for better investment flexibility. Then consider returning to the 401(k) for more tax-deferred space, understanding the fee drag. After leaving your employer, roll the 401(k) to an IRA for full investment freedom.
If you're in the 22% bracket or below and eligible for the Roth IRA, the Roth is usually the better IRA choice alongside a Traditional 401(k) — this gives you both pre-tax savings today and tax-free income in retirement. If you're above the Roth IRA income limit ($168,000 single in 2026), consider the backdoor Roth IRA or a Roth 401(k) if your employer offers it.