For most American workers, retirement saving runs through a handful of tax-advantaged accounts. They sound alike and are easily confused, but the differences, especially around tax, are worth getting straight. This is general information about US accounts, not tax or investment advice, and the dollar limits below change most years, so check IRS.gov before acting.

The 401(k): your employer's plan

A 401(k) is a retirement plan offered through an employer. You choose a percentage of your pay to divert into it, usually before tax, and your employer routes it into an investment account in your name, where you pick from the plan's menu of funds. Its biggest draw is size: the employee contribution limit for 2026 is $24,500, according to the IRS, far above what an IRA allows. Many employers also add a match, contributing extra money when you do, up to some share of your salary. A match is additional pay for saving, which is why it is so often described as the first thing to capture.

The limitation is in the name: you can only use a 401(k) if your employer offers one, and your investment choices are confined to the plan's lineup.

The IRA: the account you open yourself

IRA stands for individual retirement account, and the "individual" is the point: you open it yourself at a bank or brokerage, with no employer involved. That independence comes with a much lower ceiling. For 2026, the IRA contribution limit is $7,500, the IRS says. In exchange, you usually get a far wider range of investments than an employer plan offers, and anyone with earned income can open one, which makes the IRA the main tax-advantaged option for the self-employed or for workers whose jobs offer no plan.

Traditional vs Roth: the tax question

Both 401(k)s and IRAs come in two versions, and the difference is entirely about when you pay tax.

A traditional account is funded with pre-tax money: you deduct the contribution now, lowering this year's taxable income, the balance grows without annual tax, and you pay ordinary income tax on withdrawals in retirement.

A Roth account flips the timing: you contribute money you have already paid tax on, get no deduction today, and then, provided you are at least 59½ and have held the account for five years, withdraw everything, including all the investment growth, tax-free.

Which is better depends on a guess about your own future: if you expect a lower tax rate in retirement than today, the traditional deduction is worth more; if you expect a higher rate, or you are early in your career, the Roth's tax-free withdrawals tend to win. Because nobody knows for sure, many savers split the difference and use both.

The 2026 limits, in full

For the 2026 tax year, the IRS has set:

  • 401(k): $24,500 for employees, plus an extra $8,000 catch-up for those aged 50 and over. Workers aged 60 to 63 can instead add a larger catch-up of $11,250.
  • IRA: $7,500, plus a $1,100 catch-up for those 50 and over.

The two are separate buckets: someone can contribute to a 401(k) and an IRA in the same year, subject to each limit.

Who can use a Roth IRA

The Roth IRA carries income limits that the other accounts do not. For 2026, the ability to contribute directly phases out between $153,000 and $168,000 of income for single filers, and between $242,000 and $252,000 for married couples filing jointly, per the IRS. Above those ranges, direct Roth IRA contributions are off the table, though a more complex "backdoor" route exists. A Roth 401(k), by contrast, has no income limit, so higher earners can still get Roth treatment through work.

Getting money out

These accounts are built to stay put. Withdrawing before age 59½ generally triggers a 10% penalty on top of any income tax due, with limited exceptions. One Roth feature stands out: because you already paid tax on your contributions, you can take those contributions (though not the earnings) back out at any time without tax or penalty.

There is also a difference at the far end. Traditional 401(k)s and IRAs require you to start taking minimum withdrawals, and paying the deferred tax, beginning at age 73, the IRS says. Roth IRAs impose no such required withdrawals during the original owner's life, which makes them useful for savers who do not need the money and want to leave it to grow. As always with tax, the specifics can turn on individual circumstances, so it is worth confirming the current rules, or getting professional advice, before making a move.