IRAs and 401(k)s are both tax-advantaged retirement accounts — but they work differently, have different limits, and serve different purposes. Most people should use both.
Side-by-side comparison
| Feature | 401(k) | Traditional IRA | Roth IRA |
|---|---|---|---|
| 2026 contribution limit | $23,500 (+$7,500 catch-up) | $7,000 (+$1,000 catch-up) | $7,000 (+$1,000 catch-up) |
| Income limit to contribute | None | None (deductibility limited) | $161,000 single / $240,000 MFJ |
| Employer match | Yes | No | No |
| Investment options | Limited to plan menu | Unlimited | Unlimited |
| RMDs at 73 | Yes | Yes | No (Roth IRA only) |
| Loan provision | Often yes | No | No |
The optimal contribution sequence
- 401(k) to employer match: Never leave free money behind.
- HSA max (if HDHP-eligible): Triple tax advantage beats everything else.
- Roth IRA to max ($7,000): Tax-free growth, no RMDs, flexible access to contributions.
- 401(k) to max ($23,500): High-income earners: traditional 401(k) for current tax savings.
- Taxable brokerage: After maxing all tax-advantaged accounts.
IRA advantages over 401(k)
- Unlimited investment options (vs plan-limited 401k menu)
- Potential lower expense ratios (choose your own funds)
- More flexible withdrawal options (Roth contributions anytime)
- Easier to manage during job transitions
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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