The difference
| 401(k) | Traditional IRA | Roth IRA | |
|---|---|---|---|
| Tax when you pay in | None. Contributions are tax-deferred | Deductible if you qualify | Paid in from taxed income. Not deductible |
| Tax on growth | None while invested | None while invested | None if the withdrawal is qualified |
| Tax when you take money out | Contributions and earnings are taxed | Deductible contributions and earnings are taxed | None if the withdrawal is qualified |
| 2026 limit | $24,500 | $7,500, shared with Roth IRA | $7,500, shared with traditional IRA |
All figures are for tax year 2026. The limits are from the IRS.[1] The IRA tax rules are from the IRS comparison of traditional and Roth IRAs.[2] The 401(k) tax rules are from Investor.gov, the investor education site of the SEC.[4]
401(k): through your employer
A 401(k) is an employer-sponsored retirement plan that gives you a choice of investment options, often mutual funds.[4] In 2026 an employee can pay in up to $24,500. From age 50 you can add a catch-up contribution of $8,000.[1]
Some employers match a portion of what you pay in. Tax on the matching money is also deferred until you withdraw.[4] Many plans also offer a Roth 401(k) account, where you pay in after-tax dollars and withdrawals are generally tax-free.[4]
IRA: an account you open yourself
In 2026 you can pay up to $7,500 into your IRAs. From age 50 the catch-up amount is $1,100 more.[1] The limit covers all your traditional and Roth IRAs together, not each one.[2]
Example: $7,500 a year is $625 a month.
- Traditional IRA: you can deduct contributions if you qualify. Deductible contributions and earnings are taxed when you take them out.[2] If you are single and covered by a workplace plan, the deduction is phased out between $81,000 and $91,000 of income.[1]
- Roth IRA: contributions are not deductible. A qualified distribution is not taxed.[2] The right to contribute is phased out between $153,000 and $168,000 of income for singles and heads of household, and between $242,000 and $252,000 for married couples filing jointly.[1]
What you give up
The money is meant for retirement. If you withdraw from an IRA before age 59½, you may have to pay an additional 10% tax, unless you qualify for an exception.[2]
Traditional accounts cannot grow untouched forever. You generally have to start taking withdrawals from an IRA or a retirement plan account when you reach age 73. This does not apply to a Roth IRA while the owner is alive.[3]
How people often combine them
- 401(k) first, at least up to the level your employer matches, if your plan has a match.
- Then an IRA, where you choose the provider and the fund yourself.
- Traditional or Roth is a choice between a tax break now and tax-free withdrawals later.
Common questions
Can I pay into a 401(k) and an IRA in the same year?
Yes. The 401(k) limit and the IRA limit are separate. But if you are covered by a workplace plan, the deduction for a traditional IRA is phased out above a certain income.
Is the $7,500 IRA limit per account?
No. It is the total for all your traditional and Roth IRAs in the year.
Sources & further reading
We cite independent authorities so you can verify everything yourself. Last reviewed 15 Sept 2026.