A 401(k) is tied to your employer — you get what they offer and pay whatever fees their plan charges. An IRA is the opposite: an account you open yourself, with full control over where it lives, what you invest in, and how much you pay in fees. For most people, an IRA is the second retirement account to open, right after maxing the employer match in their 401(k).
Two Types, One Choice: When Do You Want to Pay Taxes?
There are two kinds of IRAs — Traditional and Roth — and the difference comes down to tax timing. Traditional IRA: you may be able to deduct contributions from your taxable income today. The money grows tax-deferred. You pay ordinary income tax when you withdraw in retirement. Roth IRA: no deduction now. But the money grows tax-free, and qualified withdrawals in retirement are completely tax-free.
General guideline: if you expect your tax rate to be higher in retirement than it is today, Roth wins. If you expect it to be lower, Traditional wins. Early in your career, most people benefit from Roth — you're probably in a lower bracket now than you'll be at peak earnings.
2026 Contribution Limits and Income Rules — IRS Confirmed
Per the official 2026 IRS announcement, you can contribute up to $7,500 to an IRA ($8,600 if you're 50+). That limit applies across all your IRAs combined — you can't contribute $7,500 to a Traditional and another $7,500 to a Roth.
Roth IRA has income limits. The IRS has confirmed the 2026 phase-out range at $153,000–$167,999 (single filers) and $242,000–$251,999 (married filing jointly). Above those thresholds, you can't contribute directly to a Roth IRA — but there's a workaround.
Note: Traditional IRA tax deductibility also phases out at higher incomes if you or your spouse have access to a workplace retirement plan.
The Backdoor Roth: For High Earners
If your income exceeds the Roth IRA limit, you can still get money into a Roth through the backdoor Roth strategy. The process: contribute to a Traditional IRA (no income limit for contributions, just for deductibility), then immediately convert that Traditional IRA to a Roth IRA.
The conversion is a taxable event, but since you're converting money that was contributed after-tax (non-deductible), you typically only owe taxes on any earnings — which are minimal if you convert quickly. The result: your money ends up in a Roth and grows tax-free, regardless of your income.
Note: Pro-rata rule: if you have other pre-tax IRA money, the conversion becomes more complex and partially taxable. Common fix: roll pre-tax IRA funds into a 401(k) first if your plan allows it.
Can't Touch It Until 65? Not Exactly.
The fear of locking money away is real — but IRAs are more flexible than most people think. Roth IRA contributions (the money you put in, not the earnings) can be withdrawn at any time, for any reason, with zero taxes or penalties. You've already paid tax on that money. It's yours.
Beyond that, the IRS allows penalty-free early withdrawals for specific life events even on earnings — including a first home purchase (up to $10,000 lifetime), qualified higher education expenses, and a handful of other exceptions. You'd still owe income tax on the earnings portion, but no 10% penalty.
Note: The Roth IRA contribution withdrawal rule is one of the reasons it doubles as an emergency fund of last resort. Leave it invested if you can — but knowing you can access it if needed removes the psychological barrier to contributing.
IRA vs. 401(k): Not Either/Or
The optimal order for most earners: first, contribute to your 401(k) up to the full employer match. Then max your IRA ($7,500). Then go back to your 401(k) if you have more to invest. This sequence captures free money first, then takes advantage of the IRA's typically better investment options and lower fees.
A 401(k)'s plan is controlled by your employer — you get whatever funds they offer, often with higher expense ratios. An IRA you open yourself (at Fidelity, Vanguard, Schwab, etc.) gives you access to the entire market with index funds that may cost 0.03% or less.