401(k) vs IRA vs Roth IRA: which is best for retirement?
In the US, you don't have to pick one retirement account — you can stack them. A 401(k) for the employer match, a Roth IRA for tax-free growth, and a taxable brokerage for flexibility. Here's how each one works and how to combine them.
Key takeaways
- You do not have to choose — 401(k), IRA, Roth IRA and a taxable brokerage each do a different job.
- The employer match is the highest-return move available; capture it before anything else.
- Traditional accounts win when your rate today exceeds your retirement rate; Roth wins when it does not.
- Tax diversification gives you control over IRMAA, ACA subsidies and Social Security taxation later.
- Retiring before 59½ requires a bridge: taxable brokerage, Roth contribution base, Rule of 55, or a 72(t) plan.
The four main retirement buckets
Most US retirement plans are built from a combination of these accounts. Each has a distinct tax profile, and the whole strategy comes from knowing which one to fill next.
- 401(k) / 403(b) — Workplace plan. Pre-tax contributions, tax-deferred growth, taxed as income on withdrawal. Often includes an employer match.
- Traditional IRA — Individual account. Tax-deductible contributions (income limits apply if you have a workplace plan), tax-deferred growth, taxed on withdrawal.
- Roth IRA — Individual account. After-tax contributions, tax-free growth, tax-free qualified withdrawals. Income limits to contribute directly.
- Taxable brokerage — No special tax treatment, but unlimited contributions, no early-withdrawal penalties, and favourable long-term capital gains rates.
| Account | 2025 limit | Tax in | Tax out | Penalty-free access |
|---|---|---|---|---|
| 401(k) / 403(b) | $23,500 (+$7,500 at 50+) | Pre-tax | Ordinary income | 59½, or 55 via Rule of 55 |
| Traditional IRA | $7,000 (+$1,000 at 50+) | Deductible, income limits apply | Ordinary income | 59½, or 72(t) SEPP |
| Roth IRA | $7,000 (+$1,000 at 50+) | After-tax | Tax-free if qualified | Contributions anytime; earnings at 59½ and 5 years |
| Roth 401(k) | Shares the $23,500 limit | After-tax | Tax-free if qualified | 59½; no income limit to contribute |
| Taxable brokerage | Unlimited | After-tax | Capital gains, 0/15/20% | Any time |
The priority order
A widely used priority list for US savers:
- 1. 401(k) up to the full employer match — Never leave the match on the table. It's an instant 50-100% return. (See our 401(k) match strategies guide.)
- 2. Pay down high-interest debt — Anything above ~7-8% APR usually beats market returns.
- 3. Max a Roth IRA ($7,000/yr) — Especially powerful if you expect higher tax rates in retirement or want tax diversification.
- 4. Max the 401(k) — The full $23,500 if you can.
- 5. Taxable brokerage — For early-retirement bridge money before 59½ and any extra savings.
Step 1: he contributes 6% ($5,700) and the employer adds $2,850 — an instant 50% return on that slice, worth more than any market assumption.
Step 2: he maxes a Roth IRA at $7,000, locking in today's 22% bracket against a likely higher rate later.
Step 3: with a raise, he pushes 401(k) contributions to 12% ($11,400).
Total going in each year: $21,250. At 7% over 33 years that grows to roughly $2.5 million nominal, split across pre-tax and Roth — giving him real control over his taxable income in retirement.
Tax treatment: now or later?
The big strategic question is when you pay tax:
- Pay later (Traditional 401(k) / IRA) — Best if you expect a lower tax bracket in retirement than you're in today. Most high earners in their peak years fit this profile.
- Pay now (Roth IRA / Roth 401(k)) — Best if you expect the same or higher rates in retirement, or if you simply value certainty. Young savers and anyone in a low bracket today should lean Roth.
| Your situation | Lean Traditional | Lean Roth |
|---|---|---|
| Current bracket 24%+ and expect 12-22% later | Yes | No |
| Current bracket 10-12% | No | Yes |
| Early career, income likely to rise sharply | No | Yes |
| Large pre-tax balance already, RMDs looming | No | Yes, for balance |
| Need the deduction to qualify for a credit or subsidy | Yes | No |
Tax diversification is a feature, not a tie-breaker
Having both pre-tax and Roth balances at retirement gives you flexibility to manage taxable income year by year — staying under IRMAA Medicare thresholds, qualifying for ACA subsidies before 65, or controlling how much of your Social Security is taxed.
Access rules and the 59½ cliff
Most retirement accounts carry a 10% early-withdrawal penalty before age 59½, with several important exceptions:
- Rule of 55 — Leave your employer at or after 55 and you can tap that 401(k) penalty-free. Doesn't apply to IRAs.
- Roth IRA contributions — Your own contributions (not earnings) can be withdrawn anytime, tax- and penalty-free.
- 72(t) SEPP — Substantially Equal Periodic Payments from an IRA, locked in for at least 5 years or until 59½.
- Taxable brokerage — No age restrictions ever; just capital gains tax on withdrawal.
The combo strategy for early retirees
If you want flexibility to retire before 59½, you need a bridge — and a taxable brokerage or Roth contribution base is how you build it:
- Max 401(k) and IRA for tax-advantaged growth.
- Build a taxable brokerage to cover years 55-59½ (or earlier).
- Consider a Roth conversion ladder once retired — converting Traditional balances to Roth in low-income years, each conversion accessible penalty-free after five years.
- Claim Social Security strategically (62, 67, or 70) once your bridge runs down.
Common mistakes to avoid
- Front-loading the 401(k) and losing the match — If you max out in June and your plan has no true-up, you forfeit the remaining months of matching.
- Assuming you earn too much for a Roth — The backdoor Roth IRA remains available regardless of income.
- Leaving old 401(k)s scattered — Consolidate, but check first: rolling into an IRA can block a clean backdoor Roth because of the pro-rata rule.
- Holding cash in a Roth IRA — Roth space is the most valuable space you own; put the highest-growth assets there.
- Ignoring RMDs — Required minimum distributions begin at 73 and can push you into a higher bracket than you planned for.
Your action steps
- 1Check your plan documents and confirm the exact match formula and whether it trues up.
- 2Set your contribution percentage to at least capture the full match this pay period.
- 3Open a Roth IRA if you don't have one, or use the backdoor route if you're over the income limit.
- 4Decide your Traditional vs Roth split using the table above.
- 5If retiring before 59½ is the goal, start a taxable brokerage and size it against the bridge years.
- 6Review contribution limits every January — they are indexed annually.
Summary
Take the match, use Roth space early, use Traditional space when your bracket is high, and keep a taxable account for flexibility. Drop your contributions into the Retiris Finance calculator to see compound growth, or jump to our Can I retire at 55 in the US? tool for a US-specific projection with Medicare and Social Security built in.
Frequently asked questions
Should I contribute to a 401(k) or IRA first?▾
Almost always start with your 401(k) up to the full employer match — it's an immediate 50-100% return. After that, a Roth IRA usually comes next for most middle-income earners, then back to the 401(k) to max it out.
What's the difference between a Traditional and Roth IRA?▾
Traditional IRA contributions are tax-deductible now and taxed on withdrawal. Roth IRA contributions are made with after-tax money, but qualified withdrawals (including all growth) are completely tax-free in retirement.
What are the 2025 contribution limits?▾
401(k): $23,500 ($31,000 if 50+). IRA (Traditional or Roth combined): $7,000 ($8,000 if 50+). Roth IRA has income limits — phase-out starts around $150k single / $236k married filing jointly.
Can I have a 401(k) and an IRA at the same time?▾
Yes — they have separate contribution limits. Many people max both. If you're covered by a workplace 401(k), your Traditional IRA deduction may phase out at higher incomes, but Roth IRA contributions and non-deductible Traditional IRA contributions are still allowed.
What is a backdoor Roth IRA?▾
A non-deductible contribution to a Traditional IRA followed by a conversion to a Roth IRA. It lets high earners above the Roth income limits access Roth space. Watch the pro-rata rule: existing pre-tax IRA balances make the conversion partly taxable.
When do required minimum distributions start?▾
RMDs from pre-tax 401(k)s and Traditional IRAs begin at age 73 under current rules, rising to 75 for later cohorts. Roth IRAs have no RMDs for the original owner, and Roth 401(k)s no longer require them either.
How do I access retirement money before 59½?▾
Four routes: the Rule of 55 for your current employer's 401(k), Roth IRA contributions (not earnings), a 72(t) SEPP schedule from an IRA, or simply a taxable brokerage account with no age restrictions at all.