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401(k) vs IRA: Contribution Limits and Tax Rules 2026

Both are retirement accounts. Both offer tax advantages. But they have different limits, rules, and use cases. Here’s how to use each — and the optimal strategy for maxing both.

2026 Limits at a Glance

Feature	401(k)	Traditional IRA	Roth IRA
Employee contribution limit	$23,500	$7,000	$7,000
Catch-up (age 50+)	+$7,500 ($31,000 total)	+$1,000 ($8,000 total)	+$1,000 ($8,000 total)
Employer match	Up to $69,000 total (employee + employer)	N/A	N/A
Income limits for contribution	None	None (deduction phases out)	$150K-$165K single, $236K-$246K married
Investment options	Limited to plan menu	Unlimited (any stock, bond, ETF, fund)	Unlimited
Roth option	Yes (if plan offers)	N/A	Yes (this IS the Roth)
Loans	Yes (up to $50K)	No	No
RMDs	Yes, at 73 (can delay if still working at employer)	Yes, at 73	No

The Optimal Contribution Order

If you can save $30,500/year or more, here’s the priority:

401(k) up to employer match — this is free money (100% return). Never leave the match on the table.
Max out Roth IRA ($7,000) — tax-free growth, no RMDs, full investment choice
Max out remaining 401(k) ($23,500 total) — tax-deferred growth, reduces AGI
HSA if eligible ($4,300 single / $8,550 family) — triple tax advantage
After-tax 401(k) / Mega backdoor Roth (if plan allows) — up to $69,000 total limit
Taxable brokerage — no limits, no restrictions, tax-efficient with index funds

If you can only afford one: Start with 401(k) up to the match, then Roth IRA. If you still have more, go back to the 401(k).

401(k) Advantages Over IRA

Much higher limits: $23,500 vs $7,000 — you can shelter 3.4× more income
Employer match: Free money that IRA doesn’t offer
Payroll deduction: Automatic, never forget
Roth 401(k) option: No income limits (unlike Roth IRA)
Loan provision: Borrow from your own money (not ideal, but available for emergencies)
Creditor protection: 401(k) assets are protected from bankruptcy under federal law (ERISA)

IRA Advantages Over 401(k)

Unlimited investment options: Choose any stock, bond, ETF, or mutual fund. 401(k) plans are limited to what your employer picks — and some plans have terrible, high-fee fund options.
Lower fees: The best IRA providers (Fidelity, Vanguard, Schwab) charge 0.03% for total market index funds. Many 401(k) plans charge 0.50-1.50%.
More control: You choose the provider, the investments, and the custodian
Roth IRA: No RMDs: Traditional 401(k) and IRA both require RMDs at 73. Roth IRA never does.

What About a Bad 401(k)?

Some employer plans have terrible fund options (high fees, limited selection). Even so, the employer match makes contributing worthwhile. Strategy:

Contribute up to match (capture the free money)
Max Roth IRA (better fund options, lower fees)
Return to 401(k) only if the plan has at least one low-cost index fund (target-date fund or S&P 500 index under 0.20%)
If the plan is truly awful: Contribute for the match only, invest the rest in a taxable brokerage. When you leave the employer, roll the 401(k) to an IRA.

Rollovers: When You Leave a Job

When you change jobs, you have four options for your old 401(k):

Option	When It Makes Sense
Roll to new employer’s 401(k)	If the new plan has good funds and you want consolidation
Roll to traditional IRA	Best option for most — full control, unlimited investment options
Leave it in old plan	Only if the old plan has exceptional low-cost funds
Cash out	Almost never — 10% penalty + income tax destroys 35-45% of the balance

Critical for backdoor Roth users: Rolling a 401(k) to a traditional IRA creates a pre-tax IRA balance that triggers the pro-rata rule. If you plan to do backdoor Roth conversions, roll old 401(k)s into your new employer’s plan instead.

Key Takeaways

Max 401(k) match first, then Roth IRA, then remaining 401(k) — this is the universal order
401(k) wins on contribution limits; IRA wins on investment flexibility
Even a bad 401(k) is worth the match — free money is free money
Roll old 401(k)s to IRAs when you leave a job (unless doing backdoor Roth)
The best strategy uses BOTH accounts for maximum tax-advantaged savings

This content is for informational purposes only and does not constitute financial advice. Consult a licensed financial professional before making financial decisions.