Both a 401(k) and an IRA are retirement accounts; the government gives them special treatment to reward you for saving for the long haul. People sometimes think they have to choose one. You don't. They do different jobs, and the smartest play is often to use both, in a particular order.

How they actually differ

  • 401(k): offered through your employer. You fund it straight out of your paycheck via payroll , before you ever see the money. It usually has a higher annual , and many employers add a match; the trade-off is that your investment choices are limited to the menu your plan offers.
  • IRA: you open it yourself at a brokerage. The trade-off flips: you get a far wider range of investments to pick from, but a lower contribution limit and no .

One more thing: both accounts come in Traditional and Roth flavors, so the pay-tax-now-or-later question applies to each of them too.

The employer match is the headline

If your job offers a 401(k) match, pay attention: this is the closest thing to free money you'll find. A match means your employer chips in alongside you, often something like a percentage of your pay, as long as you contribute too. Skipping it is leaving part of your compensation on the table.

If your employer matches your and you're not contributing enough to get the full match, you're turning down free money. Grab it first, before anything else.

A common way people use them together

There's no one-size-fits-all answer, but here's a sequence a lot of people follow as general guidance, not personalized advice:

  1. 1Contribute to your 401(k) at least enough to capture the full employer match.
  2. 2Then fund an , where the wider investment menu and added flexibility often shine. A Roth IRA especially, if you're early in your career.
  3. 3Still have more to invest? Circle back to the 401(k) and keep adding, up to its higher limit.
Tip
Changing jobs? Your 401(k) doesn't have to stay behind. You can usually roll it into an IRA or a new employer's plan so your savings follow you instead of getting stranded.

For 2026, the 401(k) lets you contribute up to $24,500 of your own pay (on top of any match), while the IRA limit is $7,500. That gap is the 'higher limit' the 401(k) has going for it. Both rise a little most years, and a qualified tax professional can help you tailor the order to your situation. This is general education, not individualized advice. The big idea is simpler than it looks: grab the free match, then build from there.