A 401(k) is an employer plan with a big contribution limit and often a match; an IRA is your own account with far more investment choice and lower fees. Most people should use both — and the order matters more than the label.
Quick verdict
Fund in this order: (1) your 401(k) up to the full employer match — that's free money; (2) an IRA for cheaper funds and wider choice; (3) back to the 401(k) to use its much larger limit. No match offered? Many people start with the IRA, then top up the 401(k).
401(k) vs IRA at a glance
| Feature | 401(k) | IRA |
|---|---|---|
| Who offers it | Your employer | You open it yourself |
| 2026 contribution limit | ~$24,500 | ~$7,500 |
| Employer match | ✅ Often | ❌ No |
| Investment choice | Limited fund menu | ✅ Almost unlimited |
| Typical fees | Can be higher | ✅ Usually lower |
| Roth option | Often (Roth 401k) | ✅ Yes (Roth IRA, income limits) |
| Required Minimum Distributions | Yes (Roth 401k now exempt) | Traditional yes / Roth no |
2026 limits are approximate pending final IRS figures.
Why the employer match comes first
If your employer matches, say, 100% of the first 4% of pay, that is an instant 100% return on those dollars — something no fund or stock can promise. Capturing the full match should be your very first retirement move, ahead of an IRA or paying down low-interest debt. Skipping it is leaving guaranteed money on the table. See how 401(k) matching works.
Why the IRA comes next
Once the match is captured, an IRA usually beats adding more to a mediocre 401(k) menu: you can buy any low-cost index fund or ETF, and fees are typically lower. That fee gap compounds into real money over decades. After you've maxed the IRA, return to the 401(k) to take advantage of its much higher limit.
Traditional or Roth?
Both accounts come in traditional (deduct now, taxed later) and Roth (after-tax now, tax-free later) flavors. If you expect a higher tax rate in retirement, lean Roth; if lower, lean traditional. For a deeper look, read Roth IRA vs 401(k) and Roth vs Traditional IRA.
Related calculators & guides
- 401(k) Calculator — project your balance with employer match.
- Roth IRA Calculator — see tax-free growth over time.
- Retirement Calculator — are you on track?
- 401(k) & IRA Limits 2026.
Frequently asked questions
Should I use a 401(k) or an IRA?
Use both, in order: 401(k) up to the full match, then an IRA for cheaper funds and wider choice, then back to the 401(k) for its larger limit. With no match, many people start with the IRA.
What is the difference between a 401(k) and an IRA?
A 401(k) is an employer plan with a high limit (~$24,500 in 2026) and often a match but a limited fund menu. An IRA is your own account with a lower limit (~$7,500) but almost unlimited choice and usually lower fees.
Can I have both a 401(k) and an IRA?
Yes — the limits are separate, so in 2026 you could contribute to both. Your IRA deduction may be limited if you also have a workplace plan and high income.
Is a 401(k) match worth it?
Almost always — a match is an instant, guaranteed return. Capturing the full match should be your first retirement priority.