The money essentials / 03
Retirement accounts,
made understandable.
Get clear on IRAs and 401(k)s, compare Traditional and Roth, and make a plan for your next contribution.
Checked against IRS limits · IRS withdrawal rules.
01 / Know the accounts
The account holds the investments.
An IRA or 401(k) is an account with tax rules. It is not an investment by itself. The funds, securities, or cash inside determine how your money is invested and what risks it carries.
A 401(k) comes through work.
You contribute through payroll, typically choosing from the plan’s investment menu. Your employer may contribute too. Read the plan’s eligibility, fees, match formula, and vesting rules.
An IRA is an individual account.
You open it with a provider. Investment choices and fees vary. Contribution eligibility depends on compensation and other rules; a workplace plan does not automatically prevent you from having an IRA.
See how an employer match works.
Fictional plan · $50,000 annual eligible pay
Suppose your employer matches dollar for dollar on the first 4% of pay you contribute. Choose your contribution rate:
At 4%, you receive the full $2,000 match in this example.
Your money plus the match, per year
Assumes full-year eligibility, steady contributions, and this specific match formula. Shows contributions, not investment returns or take-home-pay changes. Actual match timing and vesting vary.
What does vesting mean?
Vesting determines how much of an employer contribution you keep if you leave. Your own salary contributions are yours; employer contributions may vest immediately or over time. Check your plan’s schedule and your vested balance.
Does opening an account mean the money is invested?
Not necessarily. A workplace plan may use a default investment, while an IRA deposit may remain in cash until you choose investments. Confirm where contributions go and review the risk, diversification, and fees.
Learn more: Department of Labor’s retirement-plan guide ↗
02 / Taxes and limits
Traditional and Roth describe tax treatment.
Pre-tax contributions can reduce taxable income now, with tax generally due when withdrawn. Roth contributions use after-tax money, with qualified withdrawals tax-free. Eligibility and withdrawal rules matter.
Traditional IRA: a deduction is conditional.
Your contribution may be deductible. Income and workplace-plan coverage for you or your spouse can restrict the deduction. Nondeductible contributions need careful records so they are not taxed again.
Roth IRA: eligibility depends on income.
Contributions are not deductible. Direct contributions have income limits. Qualified withdrawals require the applicable five-year period and age 59½ or another qualifying condition.
A 401(k) may offer both.
If your plan offers Roth, you may split employee contributions between pre-tax and Roth. They share one employee deferral limit. Roth 401(k) contributions do not have the Roth IRA income cutoff.
2026 contribution limits at a glance.
IRAs combined: $7,500, or $8,600 if age 50 or older, subject to eligible compensation. Traditional and Roth IRAs share this limit.
401(k) employee deferrals: $24,500 across pre-tax and Roth. If catch-ups are permitted, the total is $32,500 at ages 50–59 or 64+, and $35,750 at ages 60–63.
Age is measured at year-end. Employer contributions fall under separate overall plan limits. IRA and 401(k) limits are separate; eligibility and plan restrictions still apply.
Which tax treatment fits me?
Compare your current tax situation with what you reasonably expect later, along with deduction eligibility and cash-flow needs. Future tax rates are uncertain. A mix may fit some households; there is no universal winner.
What should I check about catch-up contributions?
Confirm your plan permits them and which age-based limit applies. Some higher earners must make workplace catch-up contributions as Roth beginning in 2026. Ask the administrator how the prior-year wage test applies to you.
IRS catch-up contribution rules ↗
Can I withdraw the money whenever I want?
Access depends on the account and plan. Early withdrawals may trigger income tax and an additional tax unless an exception applies. Roth IRA regular contributions have different rules from earnings and conversions; Roth 401(k) withdrawals follow different rules again. Check before withdrawing or rolling money over.
Verify your eligibility: IRS 2026 limits and income ranges ↗ · IRS Roth comparison ↗
03 / Build your plan
Connect your contributions to a purpose.
“What can I contribute consistently, what benefits are available, and how will the money be invested?”
Review your workplace benefits.
Check any match, vesting, eligibility, and contribution timing. Weigh the benefit against essential bills, emergency savings, and debt obligations. A contribution limit is a ceiling, not a required target.
Compare accounts and investments.
Look at taxes, fees, investment choices, and access rules before choosing between additional workplace contributions and an IRA. Select investments suited to your timeline and risk tolerance; the tax benefits do not prevent investment losses.
Check and adjust periodically.
Review contribution rates, investment allocations, and beneficiary designations. After a pay or job change, confirm your settings and track contributions across accounts to avoid exceeding applicable limits.
What happens when I change jobs?
You may be able to leave funds in the old plan, move them to a new plan, or roll them to an IRA. Compare fees, investments, protections, and tax consequences. A direct rollover can avoid some withholding complications; converting pre-tax money to Roth can create taxable income.
Will I have to take withdrawals later?
Traditional accounts generally have required minimum distributions (RMDs), with timing depending on birth year, account type, and sometimes employment status. Roth IRAs and designated Roth workplace accounts have no lifetime RMDs for the original owner. Beneficiaries have separate rules.
Do state taxes follow the same rules?
Not always. State tax treatment can differ from federal treatment, including for retirement-income exclusions. Check your state’s current rules and get advice before a large withdrawal or conversion.