401(k), IRA, Roth: which account does what
The US retirement accounts, in plain words.
4 min read
A retirement account is a container. You choose the investments that go inside it. The type of account decides how taxes work.
| 401(k) | Traditional IRA | Roth IRA | |
|---|---|---|---|
| Who opens it | Your employer | You | You |
| You pay tax on money going in | Usually not | ||
| You pay tax when you take it out | |||
| Employer match | Often | ||
| Income limit to put money in | |||
| Yearly limit in 2026 | $24,500 | $7,500, shared | $7,500, shared |
401(k)
Your employer offers it. Money goes in from your paycheck before tax, so you pay less tax today.
Many employers match part of what you put in. Always put in enough to get the full match. It is an instant 50% to 100% return.
IRA
You open an IRA yourself, at a company like Fidelity, Vanguard or Charles Schwab. There are 2 kinds:
- Traditional IRA. You may pay less tax now. You pay income tax when you take money out in retirement.
- Roth IRA. You put in money you already paid tax on. It grows tax-free. You pay no tax when you take it out in retirement.
2026 limits
- 401(k): up to $24,500. Age 50 or older: $8,000 more. Age 60 to 63: $11,250 more instead.
- IRAs: up to $7,500 in total across all your IRAs. Age 50 or older: $1,100 more.
Roth IRA income limits in 2026
As your income goes up, the amount you can put in a Roth IRA goes down. Above the top of the range, you can't put money in directly.
| How you file taxes | Full amount if you earn under | Nothing if you earn over |
|---|---|---|
| Single | $153,000 | $168,000 |
| Married, filing together | $242,000 | $252,000 |
| Married, filing separately | $10,000 |
A 401(k) has no income limit. Anyone with work income can put money in a Traditional IRA. But if you have a plan at work, the tax break shrinks at higher incomes. If you earn above the Roth limits, ask a professional about a "backdoor Roth".
Taking money out early
Before age 59½, you usually pay income tax plus a 10% penalty. There are some exceptions. One is the Roth IRA: you can take out the money you put in at any time. The growth has to wait.
A simple order to save in
- 1Put enough in your 401(k) to get the full employer match
- 2Pay off high-interest debt, like credit cards
- 3Put the full amount in a Roth IRA, if you can
- 4Add more to your 401(k) until you save about 15% of your income