401(k) or IRA: the 2026 limits and how to choose

The 2026 limits

The IRS raised the limits for 2026 (announcement of 13 November 2025). Each applies to your own contributions in the calendar year:

• 401(k), 403(b), governmental 457 plan and the federal Thrift Savings Plan: $24,500, up from $23,500 in 2025.
• Catch-up for age 50 and over in those plans: $8,000, so $32,500 in all. At ages 60, 61, 62 and 63 the catch-up is $11,250 instead.
• IRA, traditional and Roth together: $7,500, up from $7,000. The catch-up for age 50 and over is $1,100.
• SIMPLE plan: $17,000 (or $18,100 in some plans), with a $4,000 catch-up for age 50 and over.

Traditional or Roth

With a traditional account you may deduct the contribution, or it comes out of your pay before income tax in a 401(k), and you pay tax on withdrawals. With a Roth account you cannot deduct the contribution, and qualified withdrawals are tax-free (IRS). The idea is to pay tax at the lower rate: a Roth tends to suit you if your tax rate is low now, a traditional account if it is high now and you expect it lower in retirement. Many people split.

Income limits apply to IRAs. A traditional IRA deduction phases out if you are covered by a workplace plan, between $81,000 and $91,000 for singles and $129,000 and $149,000 for married couples filing jointly. A Roth IRA contribution phases out between $153,000 and $168,000 for singles and heads of household, and between $242,000 and $252,000 jointly.

What each account does best

• 401(k): a high limit, money taken from your paycheck automatically, and often an employer match, which is extra pay for saving. You choose from the plan’s funds.
• IRA: you open it at any broker or bank, with a wide choice of investments. The limit is lower, and you contribute yourself. A Roth IRA has income limits; a traditional IRA deduction may not be available if you have a workplace plan and a higher income.
• You can use both: the limits are separate. The $7,500 limit is shared between all your IRAs, Roth and traditional.

Getting at the money

Take money out of an IRA before age 59½ and you generally pay a 10% additional tax on the taxable part, on top of income tax, unless an exception applies (IRS). Traditional accounts require minimum withdrawals starting at age 73; in a workplace plan you can delay them until the year you retire, unless you own 5% of the company. A Roth IRA has no required withdrawals for the owner: you can leave it as long as you live.

The Saver’s Credit, and a common order

If your income is low, a tax credit may add to the benefit: the Saver’s Credit income limit for 2026 is $80,500 for married couples filing jointly, $60,375 for heads of household and $40,250 for singles.

A common order of priorities is not advice for any one person:

• Contribute to the 401(k) at least up to the employer match.
• Keep an emergency fund, so you do not have to withdraw early.
• Fill an IRA, Roth if your income allows it.
• Go back to the 401(k) up to the limit, then to a taxable account.