Open them in this order: your 401(k) up to the full employer match first, then a Roth IRA, then back to the 401(k). The match is an instant, guaranteed return you'll never find anywhere else, the Roth locks in tax-free growth while your rate is likely lower, and the 401(k)'s higher limit lets you keep going. It's not Roth or 401(k), it's both, in sequence.
The "Roth IRA vs. 401(k)" question gets framed as a fight, but it's really a batting order. These are different accounts with different rules and different limits, and using them in the right sequence quietly adds tens of thousands of dollars over a career. Over 20+ years of explaining this, I've found the order matters far more than agonizing over which one is "better."
1. Fund your 401(k) to the full match first, it's free money
If your employer offers a match, contributing enough to capture all of it is the highest-return move in personal finance, full stop. A common match, say 100% of the first 4% you put in, is an instant 100% return on those dollars before the market does anything at all. Nothing else reliably doubles your money the day you invest it.
So step one is simple: set your 401(k) contribution to at least the percentage that earns the entire match, the week you're eligible. Leaving the match on the table is the same as turning down a raise. If you're just getting started and this is your very first job, my first-paycheck game plan for new grads walks through capturing the match alongside everything else.
2. Then max a Roth IRA, tax-free growth and more control
Once the match is locked in, your next dollar should go into a Roth IRA, not back into the 401(k). For 2026 you can contribute up to $7,500 (plus a $1,100 catch-up if you're 50 or older). You fund it with money you've already paid tax on, and every dollar of growth comes out completely tax-free in retirement.
A Roth IRA also gives you far more control than a workplace plan. You open it yourself at any major brokerage, you pick from thousands of low-cost index funds instead of a short menu, and your contributions (not the earnings) can be withdrawn penalty-free if you ever truly need them. If you're not sure how to begin, here's how to start investing with as little as $100.
3. Then go back to the 401(k), use that bigger limit
After you've maxed the Roth IRA, return to your 401(k) and keep contributing toward its much larger ceiling. For 2026, you can defer roughly $24,500 of your own pay into a 401(k), and the employer match sits on top of that number, it doesn't count against your limit.
This is where serious wealth gets built. The match jump-starts you, the Roth shelters growth from taxes forever, and the 401(k)'s high limit lets you shovel in real money once both of those boxes are checked. Many plans now also offer a Roth 401(k) option, which combines payroll convenience with tax-free withdrawals, worth a look if your goal is more tax-free money in retirement.
4. Roth vs. traditional: pay tax now or pay tax later
The whole Roth-versus-traditional decision comes down to one question: do you want to pay tax now or later? With a Roth, you pay tax on the money going in today and withdraw everything, contributions plus decades of growth, tax-free. With a traditional 401(k) or IRA, you skip tax now and pay ordinary income tax on every withdrawal in retirement.
The rule of thumb: if you expect to be in the same or a higher tax bracket later, Roth wins, and for most people earlier in their earning years that's exactly the case. Paying a known tax rate today often beats gambling on what rates will be 30 years from now. That's why I lean Roth-first for younger savers and split toward traditional only once you're in a high bracket and want the deduction today.
5. Know the 2026 limits and the Roth income phase-outs
For 2026, plan around two key numbers: about $24,500 in 401(k) employee deferrals and $7,500 in a Roth IRA, with a $1,100 Roth catch-up and a larger 401(k) catch-up once you turn 50. Treat these as 2026 planning figures and confirm the final IRS amounts before you max out, since they're adjusted for inflation each year.
There's one more catch: Roth IRAs have income phase-outs, so high earners can be limited or shut out of direct contributions entirely. If you earn too much to contribute directly, the backdoor Roth IRA – contributing to a traditional IRA and converting it, is a common, legal workaround, though it's worth a quick chat with a tax pro to do it cleanly. For the bigger picture on building wealth from your first dollar, explore the First-Time Investors hub.