A 401(k) is an employer-sponsored retirement plan funded by deferrals from your paycheck, often with an employer match, while an IRA is an individual retirement account you open yourself at a broker or bank. For 2026 you can defer up to $24,500 in a 401(k) and contribute up to $7,500 to an IRA. Many people use both, in that order.

The core difference

The simplest way to tell them apart is who controls the account. A 401(k) comes through your job. Your employer picks the plan, chooses the menu of funds you can invest in, and may match part of what you put in. An IRA is yours alone. You open it, you pick the provider, and you can invest in almost anything that provider offers, which is usually a far wider range than a workplace plan.

That trade-off runs through every other difference. The 401(k) gives you a much higher contribution limit and the chance of free money from a match, but a narrower investment choice and sometimes higher plan fees. The IRA gives you control and choice, but a lower limit and income rules that can restrict the tax break. There is also a convenience gap: 401(k) contributions come straight out of your paycheck before you ever see the money, which makes saving automatic, while an IRA relies on you to move money in yourself.

The 2026 contribution limits

The figures below are from the IRS, which announced the 2026 limits in Notice 2025-67 on November 13, 2025.

For a 401(k), 403(b), most 457 plans and the federal Thrift Savings Plan, the employee deferral limit is $24,500. Workers 50 and older can add a catch-up of $8,000, for a total of $32,500. Under the SECURE 2.0 law, workers aged 60 to 63 get a larger catch-up of $11,250 in place of the $8,000.

For an IRA, the limit is $7,500, with a catch-up of $1,100 for those 50 and older, so eligible older savers can put away up to $8,600. The IRS also notes that your IRA contribution cannot exceed your taxable compensation for the year if that is lower than the limit.

The employer match

The match is the single biggest reason the 401(k) usually comes first. If your employer matches, say, 50 cents on the dollar up to 6 percent of pay, that is an immediate return on your own contribution that no IRA can offer. Leaving a match on the table is leaving pay behind. One thing to check is the plan's vesting schedule: the money you contribute is always yours, but employer contributions may only become fully yours after you have been at the company for a set number of years. Some employers also make nonelective contributions, meaning they put money in whether or not you contribute.

Taxes and deductibility

Both account types come in two tax flavors. Traditional versions are funded with pretax money and taxed when you withdraw in retirement; Roth versions are funded with after-tax money and qualified withdrawals come out tax free. Most employer plans now offer a Roth 401(k) alongside the traditional one, so the Roth-versus-traditional decision is not unique to IRAs. One wrinkle specific to the IRA: if you or your spouse is covered by a workplace plan, the IRS says your traditional IRA deduction "may be limited" once your income rises above certain levels, and high earners can be phased out of contributing directly to a Roth IRA altogether. Both account types generally impose a 10 percent penalty on withdrawals before age 59 and a half, with some exceptions, so this is money meant to stay put. For a closer look at the Roth-versus-traditional choice, see our guide to a Roth IRA versus a 401(k), and for how investment gains are taxed outside these accounts, our explainer on capital gains tax.

Can you have both?

Yes. The IRS says you can contribute to a traditional or Roth IRA even if you already participate in a workplace plan, though your IRA deduction may phase out at higher incomes. The two limits are separate, so in 2026 you could in principle add up to $24,500 to a 401(k) and up to $7,500 to an IRA in the same year. That is why a common sequence is to contribute enough to the 401(k) to capture the full match, then fund an IRA for its wider investment choice and often lower fees, then return to the 401(k) for any remaining room up to the limit. The IRS also notes that money rolled over from one retirement account to another does not count against the annual IRA contribution limit, which matters when you change jobs and move an old 401(k) into an IRA.

What to weigh

Neither account is universally better. Weigh the size of your employer match, the fees inside your plan, the investment menu each option gives you, and whether your income affects the IRA tax break. Two more practical points round out the picture. First, portability: when you leave a job you can roll a 401(k) into an IRA, which often widens your investment choice and can lower your costs, though it is worth checking whether your old plan had access to low-fee institutional funds you would lose. Second, required minimum distributions: traditional 401(k) and IRA balances must eventually be drawn down under IRS rules in retirement, while Roth IRAs have no such requirement for the original owner, a difference that can matter for estate planning. This explainer lays out the rules and the 2026 limits; it is not personalized advice, and the right mix depends on your own situation.