The Accounts at a Glance
| 401(k) | Traditional IRA | Roth IRA | |
|---|---|---|---|
| 2026 Limit (Under 50) | $23,500 | $7,000 | $7,000 |
| Catch-up (50+) | $7,500 extra | $1,000 extra | $1,000 extra |
| Tax break now? | Yes (Traditional) | Yes | No |
| Tax-free withdrawals? | No (Traditional) | No | Yes |
| Income limits? | No | Yes (for deduction) | Yes ($146K single, $230K married) |
| Employer match? | Often yes | Never | Never |
The Exact Priority Order
1. 401(k) up to the match
If your employer matches 50% of contributions up to 6%, putting in 6% gets you an instant 50% return — plus tax savings. Nothing beats free money.
2. IRA (Roth or Traditional)
IRAs give you full control — any fund, any broker, no employer restrictions. Typically lower fees than 401(k)s. Fund this after capturing the match.
3. Back to 401(k) until maxed
Once the IRA is full ($7,000), go back to the 401(k). The $23,500 limit gives you room to save 15-20% of most incomes.
4. Taxable brokerage
Only after all tax-advantaged space is used. Still valuable — just less tax-efficient.
The Match: Your Employer Is Handing You a Raise
A 50% match on 6% means for every $100 you contribute, your employer adds $50 — up to 3% of your salary. On a $70,000 salary, that's $2,100/year in free money. Invested at 8% over 30 years: $257,000 from employer contributions alone. Not maxing the match is literally turning down part of your compensation.
Roth vs Traditional: Which IRA Is Right for You?
| Factor | Choose Traditional | Choose Roth |
|---|---|---|
| Current tax bracket | 22% or higher | 12% or lower |
| Expected retirement bracket | Lower than now | Same or higher |
| Age | 40+ (less time to compound tax-free) | Under 35 (decades of tax-free growth) |
| Need the deduction now? | Yes — lowers AGI | No — can afford the tax bill |
For most early-career earners (22% bracket or lower), Roth is the better long-term play. Paying tax on the seed is better than paying tax on the harvest. A 25-year-old putting $7,000/year into a Roth IRA at 8% for 40 years withdraws $1.68 million completely tax-free. The same amount in Traditional would owe income tax on every withdrawal.
Roth IRA Income Limits (2026)
If you earn too much, you can't contribute directly to a Roth IRA. But you can use the Backdoor Roth:
- Contribute to a Traditional IRA (non-deductible)
- Immediately convert it to Roth
- No income limits apply to conversions
One catch: if you have existing Traditional IRA balances, the pro-rata rule may trigger taxes. Consult a tax professional before attempting a backdoor Roth.
Key Takeaways
- Priority order: 401(k) match → IRA → 401(k) max → taxable
- Employer match is instant 50-100% return — never leave it on the table
- Roth wins for early-career (22% bracket or lower), Traditional wins for peak-earning years
- IRAs have better fund choices and lower fees than most 401(k)s — fund them second
- $23,500 + $7,000 = $30,500/year in tax-advantaged space for most workers