Roth IRA vs. 401(k): which should you prioritize?

How do a Roth IRA and a 401(k) differ?

A 401(k) is a workplace plan your employer sets up. A traditional 401(k) takes contributions before income tax, and you pay tax when the money comes out. Some plans also offer a Roth 401(k) option, where you contribute after tax and qualified withdrawals are tax-free. A Roth IRA is an account you open yourself. You don’t get a deduction for contributing, and qualified distributions are tax-free.

One more number matters if you contribute a lot. The IRS caps total additions to your 401(k), meaning your contributions plus your employer’s, at $72,000 for 2026 or 100% of your pay if that’s less, not counting catch-up contributions.

In what order should you fund them?

Here’s the order many people follow. Whether it fits you depends on your plan, your income and when you might need the money.

1. Your 401(k), up to the full employer match. A match is money your employer adds only when you contribute, so contributing less than the match means leaving part of your pay unclaimed. Check your plan’s vesting schedule. The IRS says your own contributions are always 100% vested, but employer contributions can vest over time, for example all at once after three years or in steps through year six.
2. A Roth IRA, up to $7,500, if you’re eligible. People pick this step for the Roth tax treatment, for investment choices beyond your plan’s menu, and for flexibility. Under the IRS ordering rules, withdrawals of your regular Roth IRA contributions come out first and aren’t taxed. Earnings are different, and they’re tax-free only in a qualified distribution, which generally means at least five tax years have passed since your first Roth IRA contribution and you’re 59½ or older.
3. Back to the 401(k), up to $24,500. Once the IRA is funded, more 401(k) contributions keep more of your savings in a tax-advantaged account.
4. A taxable brokerage account, or after-tax 401(k) contributions if your plan allows them. Beyond that, money goes into a regular account, or toward the $72,000 total cap in plans that allow after-tax contributions.

Roth or traditional: how do taxes change the answer?

The core trade-off is paying tax now or later. With traditional contributions, you lower your taxable income this year and pay ordinary income tax on withdrawals in retirement. With Roth contributions, you pay tax now and qualified withdrawals are tax-free.

If you expect your tax rate in retirement to be higher than it is today, paying now with Roth contributions tends to look better. If you expect it to be lower, the traditional deduction tends to look better. People early in their careers often expect to earn more later, which is why Roth contributions are popular with them. People in their peak earning years often value the deduction more.

Nobody knows future tax rates, so some people split contributions between Roth and traditional, so they have both kinds of money to draw from later. This is general education, not tax advice, and a tax professional can look at your actual numbers.

What did SECURE 2.0 change?

The SECURE 2.0 Act of 2022 changed several rules that matter for this decision.

• Higher catch-up at ages 60 to 63. In 2026, workers aged 60, 61, 62 and 63 can make catch-up contributions of up to $11,250 instead of the usual $8,000.
• Roth catch-up for higher earners. The IRS says that beginning in 2026, if your prior-year wages from the employer sponsoring your plan were over $150,000, your catch-up contributions must be Roth. The final regulations formally apply to contributions in tax years starting after December 31, 2026, and plans can apply a reasonable, good-faith reading of the law before then, so check how your plan handles 2026.
• IRA catch-up indexed to inflation. The IRA catch-up used to be fixed at $1,000. It’s now adjusted for inflation and is $1,100 for 2026.
• Roth employer contributions. Plans may now let you choose to receive matching contributions as Roth. The IRS says these amounts are included in your income for the year they’re allocated, and only fully vested contributions qualify. Plans aren’t required to offer this.
• No lifetime required distributions from Roth 401(k)s. The IRS says you don’t have to take required minimum distributions from designated Roth accounts in a 401(k) while you’re alive, the same as with a Roth IRA. Traditional 401(k)s and IRAs generally require them starting at 73.

When does the usual order change?

The common order assumes a few things about you, and when they don’t hold, it often shifts.

• No employer match. Step 1 disappears. Many people then start with a Roth IRA, or with the 401(k) if its funds and fees are good.
• Income above the Roth IRA limit. You can’t contribute directly. Some people make a nondeductible traditional IRA contribution and convert it to a Roth, often called a backdoor Roth. If you also have pre-tax money in traditional IRAs, part of the conversion can be taxable, and IRS Form 8606 is where that’s worked out.
• You might need the money before retirement. Because regular Roth IRA contributions can come out without tax, some people favor the Roth IRA for flexibility.
• A plan with high fees or a thin menu. Some people stop at the match and put the rest into an IRA, where they have more choices.

How Astor fits in

Astor is a personal investing agent on iPhone and in iMessage, and the company behind it, Gaus, Inc. DBA Astor, is an SEC-registered investment adviser. It connects through Plaid to brokerage, retirement and crypto accounts at most major US institutions, so it can see what you hold in your 401(k), your Roth IRA and any other accounts you connect. You can ask about your actual holdings, like how your mix compares across the two accounts, and with scheduled alerts you can ask it to check something on a schedule, such as a look at your retirement accounts every December.

Astor doesn’t hold your money, doesn’t move it between accounts, and doesn’t do tax filing. How much you contribute, and to which account, is your decision. The AI can be wrong, which is why it shows its sources. Astor is free to start, and you can see how it works. If you hold several funds across accounts, our guide on how often to rebalance your 401(k) covers keeping the mix on target.

Frequently asked questions

Sources

1. IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 (IR-2025-111, Nov 13, 2025), accessed Oct 21, 2026
2. IRS: Retirement topics, 401(k) and profit-sharing plan contribution limits, accessed Oct 21, 2026
3. IRS: Retirement topics, catch-up contributions, accessed Oct 21, 2026
4. IRS: Treasury, IRS issue final regulations on new Roth catch-up rule, other SECURE 2.0 Act provisions (IR-2025-91, Sept 15, 2025), accessed Oct 21, 2026
5. IRS: Retirement topics, IRA contribution limits, accessed Oct 21, 2026
6. IRS: Roth IRAs, accessed Oct 21, 2026
7. IRS: Publication 590-B, Distributions from Individual Retirement Arrangements, accessed Oct 21, 2026
8. IRS: 401(k) plans, accessed Oct 21, 2026
9. IRS: Retirement topics, vesting, accessed Oct 21, 2026
10. IRS: Retirement topics, required minimum distributions (RMDs), accessed Oct 21, 2026
11. IRS: Notice 2024-2, miscellaneous changes under the SECURE 2.0 Act of 2022, accessed Oct 21, 2026
12. IRS: About Form 8606, Nondeductible IRAs, accessed Oct 21, 2026