401(k) vs Traditional IRA vs Roth IRA: How They're Different

A 401(k), a Traditional IRA, and a Roth IRA all do the same basic job — help you save for retirement with a tax benefit — but the details of who contributes, when you pay tax, and how much you can put in each year are meaningfully different. This guide breaks down the 2026 rules for each so you can decide where your next dollar of savings should go.

401(k): Employer-Sponsored, Pre-Tax (or Roth) Payroll Savings

A 401(k) is a retirement plan offered through your employer. Contributions come straight out of your paycheck, and most plans offer both a traditional (pre-tax) option and a Roth (after-tax) option. The defining feature of a 401(k) is the employer match — many employers contribute additional money based on how much you put in, which is effectively free money on top of your salary.

For 2026, the employee deferral limit is $24,500. Workers age 50+ get a catch-up of an additional $8,000 (total $32,500), and workers age 60–63 get a larger "super catch-up" of $11,250 (total $35,750) under SECURE 2.0. One important wrinkle: workers who earned over $150,000 in the prior year must make any catch-up contributions as Roth (after-tax), not pre-tax.

Traditional IRA: Individual, Pre-Tax (Sometimes)

A Traditional IRA is an account you open yourself, independent of any employer. Contributions may be tax-deductible — but only fully if you (and your spouse, if married) aren't covered by a workplace retirement plan, or if you are covered but your income falls under certain thresholds. Above those thresholds, the deduction phases out. Money grows tax-deferred and is taxed as ordinary income when withdrawn in retirement.

Roth IRA: Individual, After-Tax, Tax-Free Growth

A Roth IRA is funded with money you've already paid tax on — contributions are never deductible. The trade-off is that qualified withdrawals in retirement, including all investment growth, come out completely tax-free. Roth IRAs also have their own income eligibility limits: above a certain modified AGI, you can't contribute directly at all (though a "backdoor Roth" conversion strategy is commonly used by higher earners).

2026 Contribution Limits at a Glance

Account	2026 Limit	Catch-Up (50+)
401(k) employee deferral	$24,500	+$8,000 ($35,750 age 60–63)
Traditional + Roth IRA combined	$7,500	+$1,100 ($8,600 total)

Note: the IRA limit of $7,500 (under 50) is a combined cap across both Traditional and Roth IRAs — you can split contributions between the two, but the total can't exceed the limit.

Who Should Use Which?

• Always capture the full employer match first. If your employer matches 401(k) contributions, contribute at least enough to get the full match before funding an IRA — turning down a match is turning down guaranteed, immediate return.
• Traditional (401(k) or IRA) generally makes more sense if you expect to be in a lower tax bracket in retirement than you are now — you defer tax now at a higher rate and pay it later at a lower one.
• Roth (401(k) or IRA) generally makes more sense if you expect to be in the same or higher bracket in retirement, or simply want tax-free income and more flexibility later, since Roth IRAs also have no required minimum distributions during the original owner's lifetime.
• Many people split contributions across both pre-tax and Roth accounts to hedge against uncertainty about future tax rates.

Public-Sector Equivalents: 403(b) and 457(b)

If you work for a nonprofit, public school, or state/local government, your employer-sponsored plan may be called something other than a 401(k):

• 403(b) — the equivalent plan for nonprofit and public school employees
• 457(b) — the equivalent plan for state and local government employees

Both follow contribution limits similar to a 401(k), and some public employees are even eligible to contribute to both a 403(b)/457(b) and an IRA in the same year, effectively doubling their tax-advantaged savings capacity.

Frequently Asked Questions

Can I contribute to a 401(k) and an IRA in the same year? Yes. They have separate limits. However, your ability to deduct Traditional IRA contributions may be reduced if you're also covered by a 401(k) and your income is above the phase-out thresholds.

What happens to my 401(k) if I change jobs? You can typically roll it over into your new employer's plan or into an IRA without triggering taxes, leave it with your former employer if allowed, or cash it out (generally a bad idea due to taxes and an early-withdrawal penalty before age 59½).