A 401(k) and an IRA both shelter retirement savings from tax, but they differ enough in contribution limits, employer matching, and investment flexibility that most savers benefit from understanding both rather than picking just one.
The Core Difference
A 401(k) is an employer-sponsored plan, you can only get one through a job that offers it, and it comes with a much higher contribution limit. An IRA (Individual Retirement Account) is opened independently through any brokerage, available to anyone with earned income, but caps contributions far lower.
2026 Contribution Limits
| Account | Under 50 | Age 50-59 or 64+ | Age 60-63 |
|---|---|---|---|
| 401(k) | $24,500 | $32,500 (+$8,000 catch-up) | $35,750 (+$11,250 catch-up) |
| IRA (Traditional or Roth combined) | $7,500 | $8,600 (+$1,100 catch-up) | $8,600 (+$1,100 catch-up) |
A 401(k) lets you save more than 3x what an IRA allows at every age, the single biggest practical difference between the two.
New for 2026: High Earners Must Roth Their Catch-Up
A SECURE 2.0 rule takes effect for the first time in 2026 and catches a lot of people off guard. If you earned more than $150,000 in FICA wages from your specific employer in 2025 (the amount reported in Box 3 of your W-2, not your total household income), any 401(k) catch-up contribution you make in 2026 must go into a Roth (after-tax) account rather than pre-tax. You can still make the full catch-up amount, you just lose the upfront tax deduction on it; withdrawals in retirement remain tax-free instead. If your employer's plan doesn't offer a Roth option and you're over the threshold, you may not be able to make catch-up contributions at all until the plan adds one, so it's worth confirming with HR or your plan administrator early in the year rather than finding out at contribution time.
Employer Match Is Free Money, But Only in a 401(k)
Many employers match a percentage of your 401(k) contributions (a common structure is 50% match up to 6% of salary). This is money you don't get from an IRA, since there's no employer involved. Contributing at least enough to capture the full employer match is one of the highest-return moves available in personal finance, an immediate, guaranteed return before any investment growth even happens.
IRA Income Limits Don't Apply to 401(k)s
Roth IRA eligibility phases out at $153,000 to $168,000 MAGI for single filers ($242,000 to $252,000 married filing jointly) for 2026, above that, you can't contribute directly at all. Traditional IRA deductibility also phases out at lower income levels if you're covered by a workplace plan. A 401(k) has no such income limit; high earners can max out a 401(k) regardless of income, which is not true for a Roth IRA or a deductible Traditional IRA contribution.
Investment Choice: IRAs Usually Win
A 401(k)'s investment menu is chosen by your employer's plan administrator, typically a limited list of mutual funds. An IRA, opened at any brokerage, gives access to virtually any stock, ETF, bond, or fund on the market. If you've maxed your employer match and want more control over your investments, an IRA is often the next stop before contributing further to the 401(k).
A Common Strategy: Use Both
A widely used sequence: (1) contribute enough to your 401(k) to get the full employer match, (2) max out an IRA for broader investment choice, (3) go back and max out the remaining 401(k) room if you can save more. This captures the free match money first, then optimizes for investment flexibility, then maximizes total tax-advantaged savings.
Frequently Asked Questions
Can I contribute to both a 401(k) and an IRA in the same year?
Yes, they're separate accounts with separate limits. You can contribute up to $24,500 to a 401(k) and up to $7,500 to an IRA in the same year (2026 limits, under 50), for $32,000 total tax-advantaged savings.
Does having a 401(k) reduce how much I can put in an IRA?
No, the contribution limit itself is unaffected. However, having a workplace plan can reduce or eliminate your ability to deduct Traditional IRA contributions, depending on your income. You can still contribute to a Roth IRA or a non-deductible Traditional IRA instead.
Who is affected by the new mandatory Roth catch-up rule?
Only those who earned more than $150,000 in FICA wages from their specific employer in the prior year, and only for catch-up contributions (the amount above the standard limit for those 50 and older). Regular contributions up to the standard limit are unaffected and can still be pre-tax if your plan allows it.
What happens to my 401(k) if I leave my job?
You can typically roll it over into an IRA (a "rollover IRA") without triggering taxes, keep it in the old employer's plan if allowed, or roll it into a new employer's 401(k) if that plan accepts rollovers. Cashing it out early generally triggers taxes plus a 10% penalty if you're under 59½.