Roth IRA vs. 401(k): Which Comes First?
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A Roth IRA and a 401(k) are both retirement accounts with tax advantages, but they work differently. You do not always have to choose — but if money is limited, the order you fund them in matters.
Key takeaways
- A traditional 401(k) is funded with pre-tax money — you get a tax break today and pay tax when you withdraw in retirement.
- If your 401(k) has an employer match, contribute at least enough to get the full match before anything else.
- After the match, a Roth IRA is often the next stop because it offers tax-free growth and more investment choices than most workplace plans.
- A widely used order: (1) 401(k) up to the full match, (2) max a Roth IRA if eligible, (3) go back and contribute more to the 401(k).
On this page
The key difference: taxes now or later
A traditional 401(k) is funded with pre-tax money — you get a tax break today and pay tax when you withdraw in retirement. A Roth IRA is funded with after-tax money — no break today, but qualified withdrawals in retirement are tax-free. Which is better depends partly on whether you expect to be in a higher or lower tax bracket later.
Start with the employer match
If your 401(k) has an employer match, contribute at least enough to get the full match before anything else. A 50% or 100% match is an immediate, guaranteed return you cannot get anywhere else. Leaving it on the table is leaving free money behind.
Then consider a Roth IRA
After the match, a Roth IRA is often the next stop because it offers tax-free growth and more investment choices than most workplace plans. There are income limits on who can contribute directly, and annual contribution limits set by the IRS.
A simple funding order
A widely used order: (1) 401(k) up to the full match, (2) max a Roth IRA if eligible, (3) go back and contribute more to the 401(k). Adjust to your situation, but this captures free money first and tax-free growth second.
Official resources
Primary sources so you can check the current rules and numbers yourself:
Frequently asked questions
Can I have both a Roth IRA and a 401(k)?
Yes. Many people contribute to both, and they have separate contribution limits set by the IRS.
Is a Roth or traditional 401(k) better?
If you expect a higher tax rate in retirement, Roth (pay tax now) can win; if you expect a lower rate, traditional (defer tax) can. Many people split the difference.
What are the contribution limits?
They change yearly and are set by the IRS. Check the current-year limits before you max out, as they are adjusted for inflation.