401(k) vs. IRA vs. Roth IRA: Which to Fund First in 2026

A 401(k) is an employer-sponsored retirement account that lets you contribute pre-tax dollars directly from your paycheck. In 2026, you can contribute up to $23,500 per year ($31,000 if you're 50+). The money grows tax-deferred and you pay income tax when you withdraw it in retirement. The most important rule: always contribute at least enough to get your full employer match. If your employer matches 50% of contributions up to 6% of your salary, that's an instant 50% return on that portion, no investment can reliably beat that.

Both IRAs let you invest up to $7,000 per year ($8,000 if 50+). The difference is when you pay taxes. A Traditional IRA gives you a tax deduction now, you contribute pre-tax dollars, your money grows tax-deferred, and you pay income tax on withdrawals in retirement. A Roth IRA is the opposite, you contribute after-tax dollars, but all growth and qualified withdrawals are completely tax-free. If you expect to be in a higher tax bracket in retirement than you are now (common for younger earners), Roth is usually the better choice.

If you have money in a Traditional IRA or 401(k), you can convert it to a Roth, you'll pay income tax on the converted amount in the year of conversion, but all future growth becomes tax-free. This is especially powerful during low-income years (early in a career, between jobs, or early in retirement before Social Security kicks in). A financial advisor can model whether a Roth conversion makes sense for your specific tax situation.

If you're self-employed or a small business owner, a SEP-IRA lets you contribute up to 25% of net self-employment income (max $69,000 in 2026). A Solo 401(k) allows even higher contributions and has a Roth option. These accounts are substantially more powerful than what W-2 employees typically have access to, and a CPA or fee-only financial advisor can help you choose the right structure.

A common framework for prioritizing retirement savings: (1) Contribute to your 401(k) up to the full employer match. (2) Max out a Roth IRA ($7,000/year). (3) Return to your 401(k) and contribute up to the annual limit. (4) If you still have money to invest, open a taxable brokerage account. This order maximizes tax benefits before moving to less advantaged accounts.