Roth IRA vs Traditional IRA vs 401(k): 2026 Guide

Choosing where to save for retirement can feel harder than saving itself. The three most common choices in the United States are a traditional IRA, a Roth IRA and a workplace 401(k). They all grow tax-deferred or tax-free, but they differ in when you pay tax, how much you can contribute and who can use them. This guide explains the differences with the 2026 limits and a worked comparison.

The three accounts in plain terms

• Traditional IRA: you may deduct contributions (subject to income limits if you or a spouse has a workplace plan). Money grows without yearly tax, and withdrawals in retirement are taxed as ordinary income.
• Roth IRA: you contribute money you have already paid tax on. Growth is tax-free, and qualified withdrawals (after age 59½ and once the account has been open for five years) are tax-free too.
• 401(k): a retirement plan offered by an employer. Contributions normally come out of your pay before income tax. Many employers add matching money. Some plans also offer a Roth 401(k), which works like a Roth IRA but with the higher 401(k) limits.

How much can you contribute in 2026?

The IRS sets yearly limits. For 2026 the 401(k) limit is $24,500 and the IRA limit is $7,500. People aged 50 or older can add catch-up contributions. The IRA limit applies to all your IRAs together, so you can split it between Roth and traditional but not exceed it.

Who can use a Roth IRA or take the deduction?

Anyone with earned income can contribute to a traditional IRA, but the tax deduction shrinks and then disappears at higher incomes if you are covered by a workplace plan. A Roth IRA has its own income limit for direct contributions. Both are based on your modified adjusted gross income (MAGI).

If your income is above the Roth limit, some people use a "backdoor Roth" conversion. The rules are technical, so ask a tax professional before trying it.

Traditional or Roth? A worked example

Suppose you are in the 22% tax bracket and can put aside the equivalent of $7,500 of pre-tax pay. With a traditional account you invest $7,500. With a Roth you first pay 22% tax and invest what is left, $5,850. Both cost you the same take-home pay. After 30 years at 7%, the traditional account holds $57,092, and the Roth holds $44,532.

The traditional balance still has to be taxed on withdrawal. If your rate is still 22%, it keeps $44,532, exactly the same as the Roth. If your rate is lower or higher in retirement, the result changes:

This comparison shows why the usual advice is: choose traditional if you expect to be in a lower bracket in retirement, Roth if you expect a higher one (common early in a career), and a mix when you are unsure. One more point favours Roth: the limits are in dollars, so a Roth shelters more after-tax value than the same limit in a traditional account.

Do not skip the employer match

Employer matching is part of your pay. For example, say you earn $75,000 and your employer matches 50% of the first 3% you contribute. Contributing 3% costs you $2,250 a year and your employer adds $1,125, an instant 50% gain before any investment return.

A common order of priorities

There is no single correct order, and it depends on your income, debts and goals, but many planners suggest this sequence as a starting point:

Rules to know before you withdraw

• Early withdrawals before age 59½ from traditional accounts are normally taxed and may add a 10% penalty, with some exceptions.
• Roth IRA contributions (not earnings) can be withdrawn at any time without tax or penalty, which gives the account some flexibility.
• Required minimum distributions force withdrawals from traditional accounts and most 401(k)s starting at age 73, or 75 for those born in 1960 or later. A Roth IRA has none for the original owner.
• Rollovers: when you leave a job you can usually move a 401(k) into an IRA without tax if done correctly.

Common questions

Sources and further reading

• IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
• IRS: Roth IRAs
• IRS: Traditional IRAs
• IRS: 401(k) plans

This guide is for general education and is not tax, legal or investment advice. Tax law changes and individual circumstances differ. Limits shown are for 2026. Consult a qualified tax professional before making decisions.