401(k) vs IRA: Which One Should You Fund First?
A simple order of operations that works for almost every paycheck.
If you have both a 401(k) at work and the ability to open an IRA on your own, the order in which you fund them matters. The wrong order leaves real money on the table.
The optimal order, almost always
- 401(k) up to the employer match. Free money. Always first.
- Roth IRA, fully funded. $7,000/year in 2026 ($8,000 if 50+).
- Back to 401(k), max it out. Up to $23,000/year in 2026 ($30,500 if 50+).
- HSA if you have a high-deductible health plan - triple tax advantage.
- Taxable brokerage for anything beyond.
Why this order
Step 1: The match is a 100% return. No other investment beats it.
Step 2: A Roth IRA usually has more flexibility, lower fees, and better fund choices than a typical 401(k). Most 401(k) plans charge higher expense ratios than the Roth IRA you can open at Fidelity or Vanguard. The Roth also lets you withdraw contributions at any time without penalty, which is a real safety valve.
Step 3: Once the Roth is full, go back for the 401(k) tax break. The 401(k) has a higher contribution limit and pre-tax contributions reduce your taxable income now.
When the order changes
- You are in a very high tax bracket today. Skip the Roth IRA and max the 401(k) for the deduction. Use a backdoor Roth conversion if needed.
- Your 401(k) has unusually low fees and great fund choices. Going past the match into the 401(k) before the Roth can make sense.
- You qualify for the Saver's Credit. Lower-income workers can claim a tax credit (10-50%) for contributing to retirement accounts. Pre-tax 401(k) contributions reduce AGI and can increase the credit.
Traditional vs Roth 401(k)
Many employers now offer a Roth 401(k) option in addition to traditional. Same contribution limit ($23,000 in 2026), but Roth contributions are after-tax. For most low-and-middle income earners in a lower bracket today, Roth contributions are the right call. You give up the small tax break now in exchange for tax-free withdrawals forever.
2026 contribution limits
- 401(k) / 403(b) / TSP: $23,000 ($30,500 if 50+)
- IRA (Roth or Traditional): $7,000 ($8,000 if 50+)
- HSA: $4,150 individual / $8,300 family ($1,000 catch-up if 55+)
If this feels like too much
Just contribute to your 401(k) up to the match. If you do nothing else this year, do that. The match alone is worth more than every other piece of advice in this article combined.
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