401(k) vs IRA: Where Should Your Retirement Money Go First
Use the right account in the right order to maximise tax advantages and employer match.
The right priority order
For most people: (1) 401(k) up to the full employer match, (2) maximum Roth IRA contribution if eligible, (3) back to 401(k) up to the annual limit, (4) taxable brokerage account. This order captures every available tax advantage.
Why the match comes first
Employer match is the highest guaranteed return available — typically 50–100% on the first 3–6% of salary. Skipping it is the same as turning down a raise.
Traditional vs Roth
Traditional contributions reduce taxable income today; you pay tax on withdrawals in retirement. Roth contributions are after-tax now; withdrawals (including growth) are tax-free in retirement. Most people in their 20s–30s benefit from Roth; high earners often prefer traditional.
IRA contribution limits
The annual IRA limit ($7,000 in 2026, with extra catch-up after 50) is much smaller than the 401(k) limit. IRAs are best for the second tier of savings after capturing the match.
Investment selection matters
A 401(k) with mediocre fund choices may still beat an IRA if the match is meaningful. Inside the 401(k), pick the lowest-cost index funds available. Avoid high-fee target funds when low-fee index options exist.
Don't forget the spousal IRA
A non-working spouse can contribute to an IRA based on the working spouse's income. Often missed, almost always worth using.
Frequently asked questions
What if my employer doesn't match?
Then start with a Roth IRA, since you have full control over investments and fees, and return to the 401(k) afterward.
Can I have both?
Yes — you can contribute to both a 401(k) and an IRA each year, subject to income limits for IRA deductibility.
Should I roll over old 401(k)s?
Usually yes, into either your current 401(k) or an IRA. Consolidation simplifies management and often reduces fees.