When I was freelancing part-time and had access to neither a 401(k) nor any real savings, the Roth IRA vs. 401(k) debate felt abstract. Then I started a studio, started earning consistently, and suddenly had to make actual choices about where the money goes.
For most people under 40 without a very high income, the answer is: 401(k) up to the employer match first, then max the Roth IRA, then go back to the 401(k). But that assumes you have a 401(k). If you’re self-employed like me, the calculation looks different — and the Roth IRA usually wins until you hit the income limits.
Here’s how to think through it with the actual 2026 numbers.
The 2026 Contribution Limits
401(k): $24,500 employee contribution. If you’re 50+, add a $7,500 catch-up = $32,000. If you’re 60–63, the catch-up is $11,250 instead (SECURE 2.0 Act provision). That brings the total to $35,750 for that bracket.
Roth IRA: $7,500. If you’re 50+, $8,600. Income limits: single filers need MAGI under $150,000 to contribute the full amount. Phase-out runs from $150,000–$165,000. Above $165,000, you’re out of direct contribution eligibility (but the backdoor Roth is still available).
The 401(k) limit went from $23,500 to $24,500 this year. Roth IRA moved from $7,000 to $7,500. If you set your contributions on autopilot last year, update them now.
The Decision Order
Step 1: Employer match, always first.
If your company matches 4% and you contribute 4%, that’s an instant 100% return before the market does anything. There is no investment that competes with free money. If you’re not capturing the full match, fix that before reading the rest of this.
Step 2: Max the Roth IRA.
$7,500 goes in after-tax, grows tax-free, comes out tax-free in retirement. Two things make this worth prioritizing over dumping more into a 401(k):
First, the tax flexibility. With a traditional 401(k), every withdrawal in retirement is taxed as ordinary income. With a Roth, withdrawals are completely free. At 65 with a mix of Roth and 401(k) money, you get to choose which bucket to pull from based on your tax situation that year.
Second, no required minimum distributions. A 401(k) forces you to start withdrawing at 73. A Roth IRA has no RMDs — if you don’t need the money, it keeps compounding.
Step 3: Back to the 401(k).
After the Roth is maxed, put whatever remains into the 401(k) up to the $24,500 limit.
Step 4: HSA or taxable brokerage.
If you’ve hit both limits, a Health Savings Account (HSA) is technically the most tax-advantaged vehicle available — contributions are pre-tax, growth is tax-free, and medical withdrawals are tax-free. Triple benefit. After that, a standard taxable brokerage account with low-cost index funds.
Roth IRA vs. 401(k): Side-by-Side
| 401(k) | Roth IRA | |
|---|---|---|
| 2026 contribution limit | $24,500 | $7,500 |
| Tax treatment | Pre-tax (traditional) or post-tax (Roth 401k) | Post-tax only |
| Employer match | Yes, if offered | No |
| Required distributions at 73 | Yes | No |
| Early contribution access | No (10% penalty + taxes) | Yes — contributions only |
| Investment options | Limited to plan menu | Any broker, any fund |
| Income limit | None | Phase-out starts at $150K (single) |
When the Order Changes
This framework doesn’t work for everyone. Three situations where I’d deviate:
High income, expecting to earn less in retirement. If you’re making $200K+ now and expect to live on $70–80K in retirement, the traditional 401(k) pre-tax deduction is worth more right now. The math flips in favor of deferring taxes when your current bracket is much higher than your future bracket.
Income above the Roth IRA threshold. If you earn too much for a direct Roth IRA contribution, the backdoor Roth is still available: contribute to a non-deductible traditional IRA, then convert to Roth. It works, but has complications if you hold other pre-tax IRA money. Run it by a CPA before attempting it.
Your 401(k) plan has high-fee funds. Some employer plans are poorly constructed — funds with 1%+ expense ratios, no index fund options, or confusing menus. In that case: get the match, then prioritize the Roth IRA where you choose exactly what to invest in. Low-cost index funds make a significant difference over 30 years.
Where I Landed
I opened a Fidelity Roth IRA in 2023 with $500 just to start the clock. I’ve been adding $400–600/month since — not always the same amount, because my income fluctuates. It’s at around $10,000 now. Not dramatic, but it’s real money growing tax-free for the next 30 years.
As a sole proprietor, I don’t have a traditional 401(k) — I use a Solo 401(k), which has a much higher contribution limit ($70,000 in 2026 if you’re under 50, combining employee and employer contributions). If you’re self-employed, that option is worth understanding separately. The order doesn’t change much: Roth IRA first, then Solo 401(k) up to whatever you can afford.
Practical Notes
Deadline for 2026 Roth IRA contributions: April 15, 2027. If the year was slow or you’re just catching up, you have time.
Where to open: Fidelity (FZROX, FZILX for zero-expense index funds), Vanguard, or Schwab. All solid. I use Fidelity.
What to invest in: A target-date fund if you want hands-off, or a simple two-fund (US total market + international) if you want some control. Getting in the market is more important than perfect allocation.