401(k) vs Roth IRA
Pre-tax 401(k) vs after-tax Roth IRA - which retirement account wins for US savers?
TLDR
401(k): pre-tax contributions, tax-deferred growth, taxed on withdrawal. Roth IRA: after-tax contributions, tax-free growth, tax-free on withdrawal. 401(k) has higher limits ($23,500/yr in 2026) and employer match. Roth IRA has lower limits ($7,000/yr) but more flexibility (withdraw contributions anytime, no RMDs). Most planners say: 401(k) up to match, Roth IRA next, 401(k) until max.
Side-by-side comparison
| Criterion | 401(k) | Roth IRA | Winner |
|---|---|---|---|
| Tax treatment | Pre-tax contributions, taxed at withdrawal | After-tax contributions, tax-free withdrawal | varies |
| 2026 contribution limit | $23,500 (+$7,500 catch-up if 50+) | $7,000 (+$1,000 catch-up if 50+) | 401(k) |
| Employer match | Often 50-100% up to 3-6% of salary | None | 401(k) |
| Income limit | None for employee contributions | Phase-out starts $146K single / $230K MFJ in 2026 | 401(k) |
| Tax bracket optimization | Better if your retirement bracket < current | Better if your retirement bracket > current | varies |
| Withdraw contributions | Penalties + tax before 59.5 | Always tax-free (contributions only) | Roth IRA |
| Required Minimum Distributions | Yes, starting age 73 | None ever (huge flexibility for heirs) | Roth IRA |
| Investment options | Limited to plan menu (10-30 funds) | Any stock/fund/ETF you choose | Roth IRA |
| Loan available | Yes, up to 50% of balance / $50K | No | 401(k) |
| Behind-the-back 5-year rule | None | 5-year rule on earnings | 401(k) |
Run your own numbers
Plug in your numbers - the calculator updates instantly. Same math, your inputs.
Estimates only. Returns are not guaranteed. Tax rules and rates current as of 2026-05-16.
When each one wins
When 401(k) wins
- Your employer offers any 401(k) match (always take the free money first)
- You're in the 22-35% federal bracket today
- You expect to be in a lower tax bracket in retirement
- You need higher contribution limits ($23,500 vs $7,000)
- Your income disqualifies you from direct Roth IRA contributions (use backdoor Roth)
When Roth IRA wins
- You're in the 10-12% bracket today and expect to climb in your career
- You want maximum flexibility (no RMDs, withdraw contributions anytime)
- You want to invest in any ETF/stock (Roth IRAs typically allow this)
- You're young (20s/30s) - more compounding to use the tax-free withdrawal
- You want to leave tax-free wealth to heirs (no RMDs means more growth)
The math (typical scenario)
Two scenarios, $7,000/year for 30 years to retirement at age 60. Current marginal bracket 24%, retirement bracket 22%:
401(k) ($7,000/yr pre-tax, 24% bracket today) Effective annual cost: $7,000 (full pre-tax) Tax saved today: $7,000 x 24% = $1,680 30yr growth at 7%: $7,000 * [(1.07^30 - 1) / 0.07] = $660,773 Tax at withdrawal (22% bracket): $660,773 x 22% = $145,370 Net wealth: $515,403 Roth IRA ($7,000/yr post-tax, requires earning $9,210 pre-tax in 24% bracket) Effective annual cost: $9,210 (since you pay 24% upfront) 30yr growth at 7%: $660,773 Tax at withdrawal: $0 Net wealth: $660,773 (but $9,210 cost equivalent annually) If you can fund both for the same dollar cost: 401(k) wins via match + lower upfront tax. If you have a fixed dollar limit and expect higher future tax brackets: Roth wins. Most people are somewhere in between - hence "do both."
Why most planners say 'do both'
The right order
1. 401(k) up to the full employer match (this is a 50-100% guaranteed return - never leave it on the table). 2. Max Roth IRA $7,000 (gets you tax diversity + flexibility). 3. Back to 401(k) until you hit $23,500 (high-income earners use this most). 4. Optionally HSA if eligible. 5. Backdoor Roth if your income disqualifies direct Roth contributions.
Tax-bracket arbitrage
The decision math depends on whether your future bracket is higher or lower than today's. Young workers in 12% bracket should heavily favor Roth (almost certain to be in 22%+ later). High earners in 35% should favor pre-tax 401(k) and convert to Roth in lower-income years (e.g., between jobs, retirement before claiming SS).
Roth conversion ladder
Advanced strategy: in years where your income drops (early retirement, sabbatical, between jobs), convert chunks of 401(k) to Roth. You pay the conversion tax at the lower bracket, then the Roth grows tax-free forever. Saves significant lifetime tax.
Frequently asked questions
Can I have both a 401(k) and a Roth IRA?
Yes. Most planners recommend funding both. The annual limits are separate ($23,500 + $7,000 in 2026).
What if my income is too high for Roth IRA?
Use the 'backdoor Roth' - contribute to a traditional IRA (no income limit), then convert to Roth. Subject to the pro-rata rule if you have other traditional IRA balances.
Which should I fund first if I can only do one?
Whichever gives the bigger 'free money' return - that's the 401(k) if your employer matches. If no match, Roth IRA wins on flexibility and tax-free growth.
Are there penalties for early Roth IRA withdrawal?
Contributions can be withdrawn anytime, tax-free, no penalty. Earnings withdrawn before 59.5 + 5 years from first contribution are taxed + 10% penalty.
What's the difference between Roth IRA and Roth 401(k)?
Roth 401(k) is the after-tax option inside your employer's 401(k) plan. Higher limits ($23,500) than Roth IRA ($7,000), but subject to RMDs (Roth IRAs aren't) and your plan's investment menu.
Will tax rates be higher in retirement?
Nobody knows. Current top federal bracket is 37%; historically it's been 70%+ in the 1970s. Some planners assume 25-30% in retirement as a baseline.
Can I borrow from my Roth IRA?
No - Roth IRAs don't allow loans. 401(k)s do (up to 50% of balance, $50K cap, paid back via payroll).
What if I leave my job? What happens to my 401(k)?
Options: leave it with the old employer, roll into new employer's 401(k), roll into a traditional IRA, or roll into Roth IRA (taxable conversion). The IRA rollover gives you the most investment flexibility.
Should I fund Roth 401(k) or Roth IRA first?
Roth IRA - more flexibility (no RMDs, contributions withdrawable anytime, any ETF). Roth 401(k) is for high earners who've maxed Roth IRA and want more tax-free space.
Are 401(k) and Roth IRA both protected from creditors?
401(k) has unlimited ERISA protection (federal). Roth IRAs have $1M+ protection in bankruptcy (BAPCPA, indexed for inflation) but state-by-state for non-bankruptcy creditors.