401(k) vs. IRA vs. Roth: Where Should Your Next Dollar Go?

The accounts, translated

A 401(k) is a workplace plan with high contribution limits and, often, an employer match. An IRA is an account you open yourself with more investment choices but lower limits. Each comes in two tax flavors: traditional (tax break now, taxed in retirement) and Roth (taxed now, tax-free in retirement).

That's really it. The rest is deciding the order your dollars should flow.

The order of operations

For most people, the sequence below captures the big wins in the right order. It isn't personal advice — it's the standard framework to discuss with a professional or check against your situation.

• 1. Contribute enough to your 401(k) to get the full employer match — it's a 50–100% instant return.
• 2. Attack high-interest debt; no investment reliably beats a 24% credit card.
• 3. Fund an emergency ladder rung so investing survives your next car repair.
• 4. Max an IRA (Roth if eligible and you expect similar-or-higher future tax rates).
• 5. Return to the 401(k) and raise contributions toward the annual limit.
• 6. Beyond that: HSAs (if eligible) and taxable brokerage accounts.

Traditional or Roth?

The core question is whether your tax rate is higher today or will be higher in retirement. Early-career and lower-income years favor Roth (pay the low rate now); peak-earning years often favor traditional (skip the high rate now). Many households sensibly hold both, which also adds flexibility in retirement withdrawals.

Don't let the decision paralyze you — the difference between a good Roth/traditional split and a perfect one is small compared to the difference between contributing and not contributing.