401(k) vs IRA: Which Should You Fund First?

Both a 401(k) and an IRA are tax-advantaged accounts built for retirement savings, but they differ in who offers them, how much you can contribute, and what flexibility you get. Here's how they stack up, and a simple order of operations for deciding where your next dollar goes.

The core differences

	401(k)	IRA
Offered by	Your employer, if they sponsor one	Any brokerage, opened individually
Employer match	Common — essentially free money on contributions up to a limit	Not applicable
Contribution limits	Considerably higher	Considerably lower
Investment choices	Limited to your plan's fund lineup	Broad — most stocks, bonds, ETFs, mutual funds
Tax treatment	Traditional (pre-tax) is most common; Roth is increasingly offered	Traditional or Roth, your choice, subject to income limits on Roth eligibility

Exact dollar limits and income thresholds change most years and are best confirmed on the IRS website before you file — this article intentionally avoids citing figures that go stale.

Why the employer match usually comes first

If your employer matches part of your 401(k) contributions, that match is generally the highest-return, lowest-risk dollar available to you — it's an immediate, guaranteed return that no investment choice inside an IRA can reliably replicate. Leaving a match unclaimed is typically the first thing to fix in a savings plan, regardless of which account is otherwise "better" for you.

Why an IRA can be worth adding next

Once the match is fully captured, an IRA often becomes attractive because of its much wider investment menu — a 401(k) plan might offer a dozen fund choices, while an IRA at a brokerage opens up nearly the entire public market. For some savers, lower account fees in an IRA also make a meaningful difference over multiple decades.

A simple order of operations

1. Contribute enough to your 401(k) to get the full employer match, if one is offered.
2. Max out an IRA (Traditional or Roth, depending on your tax situation and eligibility).
3. Return to the 401(k) and increase contributions further, up to its higher annual limit, if you're able to save more.

This isn't a universal rule — someone without an employer match, or with a particularly strong 401(k) fund lineup, might reasonably prioritize differently. But it's a sound default for most people building a retirement plan from scratch.

Either way, the growth math is the same

Regardless of which account or combination you use, the underlying question is the same one our retirement calculator is built around: given what you're contributing monthly and the return you expect, will your projected balance meet your retirement goal by the age you're targeting?

This article is for educational purposes only and is not financial, tax, or legal advice. Contribution limits and tax rules change and vary by individual circumstances — confirm current figures with the IRS or a licensed advisor.