US guide
401(k) vs Roth IRA: Which Saves You More Tax?
The Traditional 401(k) and the Roth IRA are the two retirement accounts most US employees can fund at the same time. They sit at opposite ends of the tax timeline. A Traditional 401(k) lowers your taxable income today and taxes the withdrawal later. A Roth IRA uses post-tax money today and gives you tax-free withdrawals later. This guide covers the 2026 IRS limits, when each one wins, and how to use both.
Side-by-side comparison
| Feature | Traditional 401(k) | Roth IRA |
|---|---|---|
| Who offers it | Employer plan | Individual brokerage |
| 2026 contribution limit | $24,500 employee deferral | $7,500 ($8,500 if 50+) |
| Employer match | Yes, common | None |
| Contribution tax | Pre-tax, reduces W-2 box 1 | Post-tax |
| Growth tax | Tax-deferred | Tax-free |
| Qualified withdrawal tax | Taxed as ordinary income | Tax-free after age 59½ and 5-year rule |
| Required Minimum Distributions | Yes, from age 73 | None for the original owner |
| Income limits to contribute | None | Phased out above MAGI thresholds |
Traditional 401(k) in detail
A Traditional 401(k) is an employer-sponsored plan. Contributions are deducted from your paycheck before federal income tax is calculated. The IRS sets the 2026 employee deferral limit at $24,500, with an extra $8,000 catch-up if you are 50 or older. The combined employee plus employer limit is $72,000, or $80,000 with catch-up.
The investments grow tax-deferred. Withdrawals after age 59½ are taxed as ordinary income at whatever your federal and state brackets are at the time. Take money out earlier and the IRS adds a 10% early-withdrawal penalty on top, with limited exceptions.
Employer match is the part that makes the 401(k) hard to skip. A common formula is 100% of the first 3% of salary plus 50% of the next 2%. That match is free money; missing it means leaving compensation on the table.
Roth IRA in detail
A Roth IRA is opened directly with a brokerage; your employer is not involved. You contribute money you have already paid income tax on. The 2026 contribution limit is $7,500, or $8,500 if you are 50 or older, across all of your IRAs combined.
Investments grow tax-free. Qualified withdrawals of earnings after age 59½ and at least five years from the first contribution are tax-free at the federal level. Original contributions can be withdrawn at any time without tax or penalty, which makes the Roth IRA unusually flexible.
There are no Required Minimum Distributions during the original owner's lifetime, so the account can keep compounding into your 70s and 80s.
Roth IRA 2026 income phase-outs
The IRS phases out Roth IRA contributions once Modified Adjusted Gross Income passes a threshold. For 2026:
- Single or head of household: phase-out from $153,000 to $168,000.
- Married filing jointly: phase-out from $230,000 to $240,000.
- Married filing separately: phase-out from $0 to $10,000.
Above the upper limit you cannot contribute directly. Many high earners use the backdoor Roth IRA instead, which involves a non-deductible Traditional IRA contribution followed by a conversion. The pro-rata rule can create a tax bill if you hold other pre-tax IRA balances, so the order of operations matters.
When the 401(k) wins
The Traditional 401(k) is usually the better deal when your marginal tax rate today is higher than your expected rate in retirement. Deducting at 32% and withdrawing later at 22% is straight arbitrage. High-income years, pre-retirement peak earnings, and high state tax situations all push toward the 401(k).
The 401(k) also wins on raw capacity. You can defer $24,500 of your own money plus the employer match, which is more than three times the Roth IRA limit. Anyone in the 24% federal bracket or higher who is not capturing the full employer match is almost
When the Roth IRA wins
The Roth IRA is usually the better deal when your marginal tax rate today is lower than your expected rate in retirement. Early-career professionals, residents, and anyone in the 10% or 12% federal bracket pay very little to lock in tax-free growth for decades.
Even at higher brackets, the Roth IRA offers things the 401(k) does not. Tax-free income in retirement keeps Social Security and Medicare premium calculations lower. The absence of RMDs makes it the most efficient account to leave to heirs. And the ability to pull original contributions out penalty-free at any time means a Roth IRA can double as a long-horizon emergency reserve.
Can you do both?
Yes, and most US savers should. The two accounts have separate limits. A common priority order is:
- Contribute to the 401(k) up to the full employer match.
- Fund an HSA if you are on a qualifying high-deductible health plan.
- Max the Roth IRA at $7,500.
- Return to the 401(k) and push toward the $24,500 limit.
If your employer offers a Roth 401(k) option, you can also split your $24,500 deferral between Traditional and Roth treatment, which lets you blend the two tax outcomes inside the same plan.
Run your own numbers
The calculator applies your federal bracket, state tax, and employer match formula and shows whether a marginal dollar saves more in a Traditional 401(k) or a Roth IRA for you specifically. It also flags the Roth IRA phase-out and projects the after-tax balance at retirement under both treatments.
Open the US calculator