The retirement debate that's divided America — settled in 60 seconds.
Choosing between a 401(k) and a Roth IRA is one of the most consequential financial decisions you'll make. Both are tax-advantaged retirement accounts — but they tax you at opposite ends of your career.
A traditional 401(k) reduces your taxable income now: in 2025, you can shelter up to $23,500 ($31,000 if age 50+) from this year's tax bill. Withdrawals in retirement are taxed as ordinary income. If you expect to be in a lower bracket in retirement — or your employer matches contributions — the 401(k) often wins.
A Roth IRA flips the equation: you pay tax today (on up to $7,000 per year, or $8,000 if 50+), then every dollar of growth and every withdrawal in retirement is completely tax-free. If you're young, in a low bracket now, or expect tax rates to rise, Roth wins — often by a wide margin over 30+ years.
The optimal strategy for most people? Capture your full employer match first (that's a 50-100% instant return), then max your Roth IRA, then return to the 401(k). Use our calculator to see your personalised verdict.
It depends on your current vs. future tax rate. If you're in a high bracket now and expect lower income in retirement, 401(k) wins (tax deduction now, pay less tax later). If you're in a lower bracket now or expect higher rates in retirement, Roth wins (no deduction now, but completely tax-free withdrawals). Most people benefit from using both.
The 2025 401(k) employee contribution limit is $23,500 (up from $23,000 in 2024). If you're 50 or older, you can contribute an additional $7,500 catch-up, for a total of $31,000. The total limit including employer contributions is $70,000.
For 2025, single filers can contribute the full $7,000 with income under $150,000. Contributions phase out between $150,000 and $165,000. Above $165,000, you'd need a Backdoor Roth IRA strategy. Married filing jointly: $236,000 to $246,000 phase-out range.
Many employers match your 401(k) contributions up to a percentage of your salary. For example, a 4% match means if you contribute 4% of your salary, your employer adds another 4% — that's 100% free money. Not taking the full match is literally leaving money on the table.
Yes! You can contribute to both a 401(k) and a Roth IRA in the same year, subject to each account's separate limits. The optimal strategy for many people is: max employer match in 401(k) → max Roth IRA → return to 401(k) up to the limit.
If your income exceeds Roth IRA limits, you can contribute to a Traditional IRA (no income limit for non-deductible contributions) and then convert it to a Roth. This is legal and widely used by high earners. Be aware of the pro-rata rule if you have existing Traditional IRA balances.