401(k) vs Roth IRA: Complete Comparison Guide 2026
Understand the key differences between 401(k) and Roth IRA accounts, compare their tax benefits and contribution limits, and discover which retirement account is right for your situation. See real examples of 30-year retirement projections with $200K-$1M+ outcomes.
Quick Comparison
| Feature | 401(k) | Roth IRA |
|---|---|---|
| Contribution Limit | $23,500 ($31,000 at 50+) | $7,000 ($8,000 at 50+) |
| Employer Match | Yes (3-6% typical) | No |
| Tax on Contributions | Pre-tax (deductible) | After-tax (not deductible) |
| Tax on Withdrawals | Full amount taxed | Tax-free if qualified |
| Early Withdrawal | 10% penalty + taxes (59.5) | Contributions anytime penalty-free |
| Required Minimum | Starts age 73 | None in your lifetime |
| Income Limits | None | $146K-$161K (2026) |
| Best For | High earners, match | Tax-free growth, flexibility |
Real-World Scenarios
See 30-year projections for different situations:
Scenario 1: $50K Salary, Generous Match
Action: Contribute $1,500 to 401(k) (3%) to get $1,500 match
Result (30 years @ 7% return):
- • Your contributions: $45,000 (3% × 30 years)
- • Employer match: $45,000 (free money!)
- • Growth: $178,000 (investment returns)
- • Total: $268,000 after taxes ~$200K net
💡 Lesson: Never leave employer match on the table—it’s an instant 100% return.
Scenario 2: $75K Salary, Prioritizing Roth
Action: $4,500 to 401(k) for match + $7,000 Roth IRA = $11,500 total
Result (30 years @ 7% return):
- • 401(k) balance: $165,000 (pre-tax)
- • Roth IRA balance: $263,000 (tax-free!)
- • Total: $428,000 → ~$340K net (401k taxed at ~24%)
💡 Lesson: If eligible for Roth, maximize it first (after employer match) for tax-free growth.
Scenario 3: $150K Salary, High Saver
Action: $6,000 to 401(k) for match + backdoor Roth $7,000 + $17,500 more to 401(k) = $30,500 total
Result (30 years @ 7% return):
- • 401(k) balance: $915,000 (pre-tax)
- • Roth IRA balance: $263,000 (tax-free)
- • Total: $1,178,000 → ~$1,000K net
💡 Lesson: High earners can use backdoor Roth to get tax-free growth despite income limits.
Scenario 4: Self-Employed, Solo 401(k)
Action: Solo 401(k) contribution = $23,500 employee + $20,000 self-employed portion = $43,500 total
Result (30 years @ 7% return):
- • Solo 401(k) balance: $1,300,000 (pre-tax)
- • Add Roth IRA: $263,000 (tax-free)
- • Total: $1,563,000 → ~$1,250K net
💡 Lesson: Self-employed people can save much more with Solo 401(k) or SEP IRA than regular employees.
Employer 401(k) Match Explained
This is free money and should be your top priority. Here’s how it works:
Common Match Formulas
- 100% match up to 3%: You contribute 3% ($1,500), employer adds $1,500. Instant 100% return.
- 50% match up to 6%: You contribute 6% ($3,000), employer adds $1,500. 50% return on contribution.
- No match: Some employers don’t match. Still take advantage of tax deduction.
- Vesting schedule: You might have to stay 3-5 years to keep the match. Check your plan!
✓ Golden Rule: Always contribute enough to get the full employer match. If your company matches 3%, contribute at least 3%. This is the best guaranteed return you’ll ever get.
Tax Implications
Understanding the tax differences is crucial:
401(k) Tax Effect
Contribute $10,000 (pre-tax)
→ Saves $2,400 in taxes (24% bracket)
→ Account grows to $56,000
→ Withdraw at 65
→ All $56,000 taxed at your rate
→ Pay ~$13,440 in taxes (24%)
Roth IRA Tax Effect
Contribute $7,000 (after-tax)
→ Pay $1,680 in taxes now (24%)
→ Account grows to $39,000
→ Withdraw at 65
→ All $39,000 withdrawn tax-free
→ Pay $0 in taxes
Which is better? If you expect higher tax rates in retirement, Roth wins. If you expect lower rates, 401(k) wins. Most younger people should prioritize Roth (tax rates likely to increase).
Withdrawal Rules & Flexibility
Roth IRA is much more flexible for access:
Roth IRA: More Flexible
- ✓ Withdraw contributions anytime penalty-free
- ✓ Can access via Roth conversion ladder for early retirement
- ✓ No RMDs in your lifetime (pass to heirs tax-free)
- ✓ Emergency access if needed (contributions only)
- ⚠ Earnings penalty-free only if 59.5 + 5-year rule
401(k): Less Flexible
- ✗ Can’t touch before 59.5 without 10% penalty + taxes
- ✗ 59.5 rule exceptions exist (72(t) SEPP) but complex
- ✗ RMDs start at 73 (must withdraw annually)
- ✓ Can borrow against it (loan provision required)
- ✓ Limited PLLOD (parent loan, home purchase) exceptions
Optimal Contribution Strategy
Maximize your retirement savings with this priority order:
401(k) to get full employer match
If employer matches 3%, contribute 3% minimum ($1,500 example)
Max out Roth IRA ($7,000)
If eligible. Provides tax-free growth + flexibility
Max 401(k) ($23,500)
If you have extra funds after Roth. Higher contribution limit
Taxable brokerage account
If maxed out retirement accounts. Most flexibility on withdrawal
Example for $75K earner: Contribute $4,500 to 401(k) (match) + $7,000 Roth IRA + $6,000 more to 401(k) = $17,500 total saved. This captures full match, maximizes Roth, and contributes more to 401(k).
Frequently Asked Questions
401(k) is employer-sponsored with pre-tax contributions, employer matching, and taxes due on withdrawals. Roth IRA is individual account with after-tax contributions, no employer match, but tax-free withdrawals. Choose 401(k) if employer offers match, Roth IRA for tax-free growth if eligible.
401(k) is employer-sponsored with pre-tax contributions, employer matching, and taxes due on withdrawals. Roth IRA is individual account with after-tax contributions, no employer match, but tax-free withdrawals. Choose 401(k) if employer offers match, Roth IRA for tax-free growth if eligible.
401(k)
401(k): $23,500 ($31,000 if 50+), employer match typically 3-6%. Roth IRA: $7,000 ($8,000 if 50+) with income limits ($146K-$161K single, $230K-$240K married filing jointly in 2026).
Free money from employer. Example
Free money from employer. Example: employer matches 100% of first 3% you contribute. If you earn $50,000 and contribute $1,500 (3%), employer adds $1,500. This is immediate 100% return, better than any investment.
Contribute to 401(k) up to employer match first (free money), then max Roth IRA ($7,000), then back to 401(k) if you want. This captures match + Roth tax-free growth. Typical order
Contribute to 401(k) up to employer match first (free money), then max Roth IRA ($7,000), then back to 401(k) if you want. This captures match + Roth tax-free growth. Typical order: 1) Match, 2) Roth, 3) 401(k), 4) Taxable brokerage.
Yes! But total contributions across all IRAs (Traditional + Roth) max at $7,000/year. You can contribute $7,000 to Roth and $23,500 to 401(k) ($30,500 total). This is the optimal strategy for most workers.
Yes! But total contributions across all IRAs (Traditional + Roth) max at $7,000/year. You can contribute $7,000 to Roth and $23,500 to 401(k) ($30,500 total). This is the optimal strategy for most workers.
Can't contribute directly if income exceeds limits ($146K single, $230K married in 2026). But you can do 'backdoor Roth'
Can't contribute directly if income exceeds limits ($146K single, $230K married in 2026). But you can do 'backdoor Roth': contribute to Traditional IRA (non-deductible) then convert to Roth immediately, avoiding taxes. This works regardless of income.
401(k)
401(k): age 59.5+ without penalty (early withdrawal penalty 10% + taxes). Roth IRA: anytime penalty-free for contributions (not earnings). Roth earnings: age 59.5+ if account held 5+ years. Roth more flexible if you need emergency access.
401(k)
401(k): RMD starts at age 73 (2023 rule), calculated as balance ÷ life expectancy factor, typically 3-4% per year. Roth IRA: NO RMD during your lifetime—grows tax-free forever. Roth wins for long-term growth and legacy planning.
If retiring early (before 59.5) or in low tax year, Roth conversion makes sense. Pay taxes now at low rate, grow tax-free forever. Example
If retiring early (before 59.5) or in low tax year, Roth conversion makes sense. Pay taxes now at low rate, grow tax-free forever. Example: earn $50K in gap year, convert $100K from Traditional 401(k) to Roth at low rate. Costs ~$15K taxes, saves $50K+ in future taxes.
Roth IRA is better for early retirement. Contributions always withdrawal-free. Roth conversions can be accessed via Roth conversion ladder. 401(k) has 10% penalty until 59.5 (though 72(t) SEPP rule allows penalties-free withdrawals with restrictions). Roth flexibility wins.
Roth IRA is better for early retirement. Contributions always withdrawal-free. Roth conversions can be accessed via Roth conversion ladder. 401(k) has 10% penalty until 59.5 (though 72(t) SEPP rule allows penalties-free withdrawals with restrictions). Roth flexibility wins.
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