401(k) vs. IRA: Which Should You Prioritize for Retirement?

The 401(k) vs. IRA debate isn't really a debate — it's a sequence. Most people should use both, but the order matters. Fund the 401(k) to the employer match first, then max the Roth IRA, then return to the 401(k), and finally use a taxable brokerage account. This sequence optimizes free money, tax flexibility, and investment choice. Let's break down why each step exists.

Step 1: 401(k) to the employer match

An employer match is an instant 50% to 100% return on your money. If your employer matches 50% of contributions up to 6% of salary, and you contribute 6%, you get a 3% bonus — guaranteed, immediate, and risk-free. No investment in the world beats that. Capture the full match before doing anything else.

Step 2: Roth IRA

After the match, max a Roth IRA ($7,000 in 2026, or $8,000 if 50+). Roth IRAs offer tax-free growth and withdrawals in retirement, no required distributions at age 73, and the ability to withdraw contributions anytime without penalty. They also give you investment freedom — you can buy any stock, ETF, or mutual fund, unlike most 401(k)s with limited menus.

Step 3: Max the 401(k)

The 401(k) contribution limit in 2026 is $23,500 ($31,000 with catch-up at 50+). If you can afford to max it after your Roth IRA, do so. The tax deduction reduces your taxable income today, and the larger contribution limit builds your nest egg faster. If your 401(k) has high-fee funds, you might prefer a taxable brokerage with low-cost index ETFs — but only after exhausting tax-advantaged space.

The tax bracket question

If you're in a high tax bracket now and expect to be in a lower one in retirement, favor traditional 401(k)/IRA contributions for the immediate deduction. If you're early in your career with lower income, favor Roth — you pay taxes at a low rate now and never again. Many people use a mix: traditional 401(k) for the deduction, Roth IRA for flexibility.

Self-employed? Use a Solo 401(k) or SEP IRA

Self-employed individuals can contribute up to $70,000 in 2026 through a Solo 401(k) — far more than a standard employee. A SEP IRA allows up to 25% of compensation, capped at $70,000. Both are underutilized by freelancers and small business owners who don't realize they have access to the same tax advantages as W-2 employees.