401(k) vs IRA: Where Should Your Next Retirement Dollar Go?
Quick Answer
A 401(k) is offered through your employer with much higher contribution limits and (usually) a free employer match; an IRA is opened on your own with a far better investment menu and lower fees. Most workers should use both, match first, then IRA, then back to the 401(k).
At a glance
| Criterion | 401(k) | IRA | Winner |
|---|---|---|---|
| 2026 contribution limit | $23,500 employee ($31,000 if 50+). | $7,000 ($8,000 if 50+). | 401(k) |
| Employer match | Common, typically 3–6% of salary, free money. | None. | 401(k) |
| Investment menu | Restricted to plan-sponsor lineup; fees vary widely. | Almost every public stock, ETF and mutual fund. | IRA |
| Fees | Plan-admin + fund expense, can exceed 1%/yr in bad plans. | $0 at major brokerages; ETFs from 0.03%. | IRA |
| Roth option | Roth 401(k) increasingly common, with the same high limit. | Roth IRA available, subject to income limits. | Tie |
| Early-access flexibility | Plan loans + Rule of 55 carve-out. | Roth contributions withdrawable anytime; SEPP for Traditional. | Tie |
The funding order that beats either in isolation
The math almost always works out the same way: contribute to the 401(k) just enough to capture the full employer match, then move to an IRA where fees are lower and the investment menu is wider, then come back to the 401(k) to fill the rest of the limit.
Skipping the match is the single most expensive mistake in personal finance. A 50% match on a 6% salary deferral is an instant 50% return on that money, no investment will ever beat it.
When the IRA-first rule breaks
Two situations flip the order. First, a high earner already over the Roth income limit and unable to deduct a Traditional IRA gets less benefit from the IRA, go heavier on the 401(k) for the deduction. Second, a plan with truly bad fees (1.5%+ all-in) makes the IRA the better second dollar even after the match.
Either way, capture the match first. Nothing else is close.
Best for…
Anyone with an employer match
Pick 401(k)
Capture the match before touching anything else, period.
Self-employed / no employer plan
Pick IRA
Solo 401(k) or SEP-IRA is the better play; if neither, stack a Roth IRA + taxable.
High earner above Roth limits
Pick 401(k)
401(k) deduction lowers AGI which may restore other benefits; backdoor Roth handles the IRA side.
Bad 401(k) plan (>1% fees)
Pick IRA
Match first, then IRA, only top up the 401(k) if you have nothing else.
Frequently Asked Questions
- What if I leave my job?
- Rolling the 401(k) to an IRA is usually the right call, same tax treatment, dramatically better investment menu, lower fees. Skip the rollover only if you're under 55 and need Rule of 55 access.
- Can I contribute to both in one year?
- Yes, the limits are separate. A 50-year-old can put $31,000 in a 401(k) and $8,000 in an IRA in 2026, $39,000 total.
- Should I use a Roth or Traditional 401(k)?
- Same logic as Roth vs Traditional IRA, bracket-now vs bracket-later. The contribution limit is identical for either flavor of 401(k).
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