The US retirement system relies heavily on individuals voluntarily saving through tax-advantaged accounts — mainly the employer-sponsored 401(k) and the individually-opened IRA (traditional or Roth) — rather than a single mandatory public pension covering full retirement income. Understanding how these accounts differ helps you prioritize where to put your savings.
A 401(k) is offered through your employer, with contributions typically deducted directly from your paycheck before tax (traditional) or after tax (Roth 401(k), if your employer offers that option). The employee contribution limit for 2026 is $24,500, with an additional $8,000 catch-up contribution allowed if you're 50 or older ($11,250 instead for ages 60–63) — confirm current limits directly with the IRS before making contribution decisions, since these figures are adjusted periodically.
Many employers offer a matching contribution up to a certain percentage of your salary — this is effectively free money, and contributing at least enough to get the full match is generally considered a priority above almost anything else in your savings plan.
An IRA is opened on your own, independent of an employer, with a combined contribution limit across traditional and Roth accounts of $7,500 for 2026 ($8,600 if 50 or older) — confirm current limits directly with the IRS. A traditional IRA contribution may be tax-deductible now, with withdrawals taxed in retirement; a Roth IRA contribution isn't deductible now, but qualified withdrawals in retirement are tax-free, including all the growth.
Roth IRA contributions phase out at higher incomes — for 2026, the phaseout for single filers is $153,000–$168,000 modified adjusted gross income (MAGI), and $242,000–$252,000 for married filing jointly. Confirm current thresholds directly with the IRS, since they're adjusted periodically.
A commonly used order: contribute enough to your 401(k) to get the full employer match first, then consider maxing out an IRA (traditional or Roth, depending on your tax situation and eligibility), then return to the 401(k) for additional contributions up to its higher limit if you have more to invest. This isn't universal advice for every situation — but it captures the free employer match first, then takes advantage of the IRA's typically wider investment choices, before circling back to the 401(k)'s higher overall limit.
Informational content, not financial, tax, or legal advice. Verify amounts, limits, and current conditions directly with official sources (IRS, FDIC, SEC, CFPB) before making a decision.
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