Saving for retirement is a major goal for many of our clients. Two of the most popular tools are the Roth IRA and the 401(k). Each has its own advantages, and many people use both. This guide compares them so you can decide what fits your goals.
Roth IRA: tax-free growth
You fund a Roth IRA with after-tax dollars. In return, your money grows tax-free. Then, if you meet certain conditions, your withdrawals in retirement are tax-free too.
Benefits of a Roth IRA
- Tax-free withdrawals. Qualified withdrawals in retirement are free of federal income tax.
- No required minimum distributions. You don’t have to take withdrawals during your lifetime. As a result, a Roth IRA gives you more control over estate planning.
- Access to contributions. You can withdraw your contributions (not earnings) at any time without tax or penalty.
Roth IRA limits
For 2026, you can contribute up to $7,500, or $8,600 if you are 50 or older. However, your ability to contribute phases out at higher incomes. The IRS updates these income limits each year. For current figures, see the IRS page on Roth IRAs.
401(k): employer-sponsored savings
Many employers offer a 401(k). With a traditional 401(k), your contributions come out of your pay before income tax. So they lower your taxable income now, and you pay tax when you withdraw in retirement.
Benefits of a 401(k)
- Higher limits. For 2026, you can defer up to $24,500. In addition, workers 50 and older can make catch-up contributions. So a 401(k) lets you save much more than an IRA.
- Employer match. Many employers match part of your contributions. That match is free money.
- Tax-deferred growth. You pay no tax on growth until you withdraw, possibly at a lower rate.
Also note that many plans now offer a Roth 401(k) option. It combines the higher 401(k) limits with Roth-style tax-free withdrawals.
How to choose between a Roth IRA and a 401(k)
Compare your tax rates now and later
If you expect a higher tax rate in retirement, Roth contributions may be better. On the other hand, if you expect a lower rate later, pre-tax 401(k) contributions may save more.
Capture the full employer match
First, contribute enough to your 401(k) to get the full match. After that, many people fund a Roth IRA, and then return to the 401(k) if they can save more.
Think about flexibility and estate goals
A Roth IRA offers more access to your contributions before retirement. Moreover, it has no lifetime withdrawal requirement, which helps with estate planning.
Get help planning your retirement savings
The best mix depends on your income, tax bracket and goals. For background, see IRS guidance on 401(k) plans. To build your plan, call (415) 842-2940 or book a free 15-minute call.