Order of operations
IRA vs 401(k): The 2026 Order of Operations for Retirement Contributions
The IRA and 401(k) are not competing choices. They are sequential layers in the optimal retirement savings stack. Here is the canonical order of operations, the comparison table, and the SECURE 2.0 mandatory Roth catch-up rule that only applies to workplace plans.
The Canonical Order of Operations
401(k) up to the full employer match
Up to the match onlyEvery dollar of employer match is a 50-100% instant return before investment. Always capture the full match first, even at 1%. Skipping the match to fund an IRA is leaving free money on the table.
HSA (if eligible for a High Deductible Health Plan)
$4,400 single / $8,750 familyThe Health Savings Account is triple-tax-advantaged: contributions deduct, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. 2026 HSA limits: $4,400 single / $8,750 family / $1,000 catch-up (age 55+). After 65, can withdraw for any purpose (taxed like IRA).
Max your IRA (Traditional or Roth)
$7,000 / $8,000 (50+)Broader investment choice and typically lower fees than most 401(k) plans. At Fidelity, Schwab, or Vanguard, you can access zero-expense-ratio index funds. The IRA usually beats the 401(k) on pure investment quality unless your 401(k) offers institutional Vanguard/Fidelity index funds.
Max the 401(k) employee deferral
$23,500 / $31,000 (50+)After the IRA, return to the 401(k) and max it. The $23,500 deferral limit (or $31,000 at 50+) is significant tax shelter, even if the fund selection is not ideal. The tax deferral usually outweighs suboptimal fund expenses for high earners.
Mega Backdoor Roth (if plan allows)
Up to $70,000 DC limit totalAfter-tax 401(k) contributions up to the $70,000 DC limit, then in-plan Roth conversion. Requires plan support. Adds $36,500+ into Roth annually for high earners whose plan supports it.
Taxable brokerage
UnlimitedNo limits, no restrictions. Long-term capital gains taxed at 15-20%. Less tax-efficient than all the above, but the only option once you have maxed all tax-advantaged accounts.
IRA vs 401(k) Side-by-Side (2026)
| Feature | IRA | 401(k) |
|---|---|---|
| 2026 employee contribution limit | $7,000 (under 50) / $8,000 (50+) | $23,500 (under 50) / $31,000 (50+) |
| 2026 total DC limit | N/A (no employer contributions) | $70,000 / $77,500 (50+) |
| Catch-up contribution (50+) | $1,000 | $7,500 |
| Investment choice | Broad (any fund at broker) | Limited to plan menu |
| Typical expense ratios | Low (0.03-0.10% at Fidelity/Schwab/Vanguard) | Varies (0.05% to 1.5%+) |
| Employer match | None | Varies (typically 3-6% of salary) |
| Early withdrawal (before 59.5) | 10% penalty (exceptions apply) | 10% penalty; rule of 55 exception |
| Loans allowed | No | Yes, in most plans |
| RMDs during employment | Yes at 73 or 75 | No (still-working exception) |
| Backdoor Roth compatible | Yes (non-deductible + convert) | Mega backdoor Roth (if plan allows) |
SECURE 2.0 rule effective 2026
Mandatory Roth Catch-Up for $145K+ Earners: Workplace Plans Only
Starting in 2026, workers who earned more than $145,000 in wages from the plan-sponsoring employer in the prior year must make their catch-up contributions as Roth (not pre-tax) in 401(k), 403(b), and governmental 457(b) plans. This rule was originally effective 2024 but was delayed to 2026 by IRS Notice 2023-62.
Critical: this rule does NOT apply to IRA catch-up contributions.
IRA catch-up contributions of $1,000 per year for age 50+ remain available as either Traditional or Roth, regardless of income. The $145,000 threshold is an earned-income test against the PRIOR plan year’s wages from the same employer.
Roth IRA vs Roth 401(k): Key Differences
Income limits
Roth IRA: Roth IRA: phase-out $150K-$165K single, $236K-$246K MFJ in 2026.
Roth 401(k): Roth 401(k): no income limit. Any employee can choose Roth 401(k) regardless of income.
Contribution flexibility
Roth IRA: Roth IRA contributions can always be withdrawn tax-free and penalty-free at any age.
Roth 401(k): Roth 401(k) withdrawals follow plan rules, usually less flexible than IRA before 59.5.
RMDs
Roth IRA: Roth IRA: no lifetime RMDs ever.
Roth 401(k): Roth 401(k): RMDs eliminated by SECURE 2.0 starting 2024. Roll to Roth IRA to be safe.
Can contribute to both
Roth IRA: Yes. Roth IRA and Roth 401(k) have separate contribution limits.
Roth 401(k): Contribute up to $23,500 in Roth 401(k) AND up to $7,000 in Roth IRA (subject to income limit).
Special Situations
Self-employed: A solo 401(k) allows both employee deferrals ($23,500) and employer profit-sharing contributions (up to 25% of compensation), combined up to the $70,000 DC limit. You can also contribute $7,000 to an IRA. This stacking makes the solo 401(k) superior to a SEP-IRA for many self-employed high earners who want to maximize Roth access.
Teachers and public-sector: 403(b) and 457(b) plans replace the 401(k). 457(b) plans have no rule-of-55 restriction; you can withdraw at any age upon separation without penalty. See 403bvs401k.com for the comparison.
Job change rollover: When leaving a job, you have three main options for your 401(k): leave in the old plan (if good), roll to the new plan, or roll to a Traditional IRA. Rolling to an IRA gives the most investment flexibility but may complicate the backdoor Roth (pro-rata rule). If you plan to do backdoor Roth, consider rolling into the new employer’s 401(k) instead.