401(k) vs Roth IRA: Which Should You Fund First?

A dollar-for-dollar employer match is an instant 100% return. No fund, no stock, no strategy we can put on your tax return earns that reliably. So before we compare a 401(k) to a Roth IRA, understand this: if you are skipping free match money to fund an IRA, you are losing the comparison before it starts.

A 401(k) and a Roth IRA are not competitors for the same dollar. They are steps in an order of operations, and the "vs" framing is the mistake that costs people match money and Roth space every year.

Here is the actual error we see: people fund whichever account they opened first, max nothing, and leave the match or the IRA empty. Put a number on it: skipping a 4% match on a $150,000 salary forfeits $6,000 of compensation a year (illustrative round numbers). That is not a rounding error. That is real money left on the table because the question got framed wrong.

Two quick scope notes before we go further. Deciding between the traditional and Roth side of your 401(k) is a different question; we cover it at traditional vs Roth 401(k). And comparing a Roth 401(k) to a Roth IRA specifically is its own page too: Roth 401(k) vs Roth IRA. This page answers a narrower, more urgent question: given a 401(k) and a Roth IRA both sitting in front of you, what order do you fund them in?

Before the sequence, the facts. Two differences actually drive the order of operations below: employer money exists only in the 401(k), and the Roth IRA has an income phase-out the 401(k) does not. Everything else in the table is secondary to those two facts.

Here is the honesty beat: neither account is "better." The 401(k)'s weakness is the menu and fees you do not control; the Roth IRA's weakness is its small limit. They do different jobs, and a full retirement plan uses both.

The order below exists because step 1 pays a return nothing else on the list can match. Here it is, step by step.

1. 1. 401(k) to the full employer match. A 50% match is an instant 50% return; a 100% match is an instant 100% return. Nothing else on this list, not a Roth IRA, not the market, competes with that on a risk-adjusted basis. Capture the match before anything else moves.

2. 2. HSA, if you are on an HSA-eligible high-deductible health plan. One paragraph, because this is not the page's topic, but an honest waterfall cannot skip it: an HSA offers a triple tax advantage, deductible going in, tax-free growth, tax-free out for qualified medical expenses. In 2026, the self-only limit is $4,400 and the family limit is $8,750.

3. 3. Roth IRA, with the income fork. Under the MAGI phase-out ($153,000 to $168,000 single, $242,000 to $252,000 MFJ in 2026), contribute directly up to the IRA limit of $7,500. Over it: the backdoor Roth, a nondeductible traditional IRA contribution followed by a conversion. This is the high-earner wedge, and the page's main down-funnel exit; the full walkthrough lives at our backdoor Roth walkthrough.

   Watch Out

   The Pro-Rata Rule

   Existing pre-tax IRA balances can make a backdoor Roth conversion partly taxable under the pro-rata rule. Check your existing IRA balances before you convert; the full mechanics are covered in the backdoor Roth walkthrough above, not here.

4. 4. Back to the 401(k), up to the employee deferral limit. The 2026 employee deferral limit is $24,500 ($32,500 with the standard age 50+ catch-up). Whether those dollars go traditional or Roth is the traditional vs Roth 401(k) question; we don't re-teach that decision math here.

5. 5. Mega backdoor Roth, if the plan allows after-tax contributions and in-plan conversions or in-service withdrawals. Full mechanics and current-year limits live in our mega backdoor Roth guide; run your own numbers with the mega backdoor Roth calculator.

Take a hypothetical software engineer earning $180,000 with a 4% dollar-for-dollar match and $30,000 per year she can save. Composite scenario, illustrative round numbers, results vary. Here is how the waterfall plays out.

Step 1, the match: 4% of $180,000 is $7,200 into the 401(k), which pulls in $7,200 of employer match. That is $14,400 working from $7,200 out of her pocket.

Step 2, the HSA: she is on an HSA-eligible plan and contributes the illustrative individual limit of $4,400. Budget remaining after steps 1 and 2: $18,400.

Step 3, the fork: at $180,000 single, her MAGI is over the direct Roth IRA phase-out (single phase-out starts at $153,000, and $180,000 sits above that range), so she funds a backdoor Roth for the full IRA limit of $7,500. Budget remaining: $10,900.

Step 4, back to the 401(k): the remaining $10,900 of her budget goes back into the 401(k) toward the $24,500 deferral limit. Combined with her step 1 deferral of $7,200, that is $18,100 of employee deferral for the year, still under the $24,500 cap.

Step 5, mega backdoor: her $30,000 budget is exhausted before she reaches step 5. If a raise or bonus adds savings capacity next year, that new money flows to step 5 next; the mega backdoor Roth calculator shows what that space is worth once her plan allows it.

Illustrative only. Composite hypothetical, not a projection of your results. Results vary.

Yes, in one specific situation, and it is worth saying plainly: no employer match, and a high-fee plan with a bad fund menu. Once any match is captured, the Roth IRA's control, fund selection, and low cost can beat an unmatched 401(k) dollar for your next dollar of savings.

Illustrative fee math: a 1.2% plan cost versus a 0.05% index fund cost, on $100,000 over 20 years, hypothetical round numbers. At a 7% gross annual return, the 0.05%-cost portfolio compounds at 6.95% net to roughly $383,000 after 20 years; the same $100,000 at 5.8% net of the 1.2% plan cost compounds to roughly $309,000. That gap, about $74,000 on the same starting balance and the same gross return, is fee drag, not investment skill. A high-fee plan with no match can genuinely cost you that much.

Even then, the 401(k)'s higher limit means most high earners come back to it. The Roth IRA wins a battle, not the war. Name the reverse honestly too: the 401(k) wins on limit size, on the match, and on having no income cap; for high earners it usually holds more of the plan by the time you retire.

Retirement account sequencing is one lever inside a full plan. For the rest of the levers, see how to reduce taxable income. And if you are a tech employee whose RSU income can spike your MAGI mid-year and push you across the phase-out, our CPA for tech employees service page covers the persona fit.

This page is for W-2 employees with access to a workplace 401(k) who can save beyond the match, especially tech and other high earners near or above the Roth IRA phase-out. If you are deciding where next month's savings goes, this is your page.

You do NOT need this page if you cannot yet save beyond your employer match. The answer for you is one line: take the full match, and come back when your savings rate grows. You can also skip it if you are self-employed with no employer plan; your comparison is SEP IRA vs solo 401(k).

Nothing here requires hiring anyone. The waterfall is DIY-able. Where we earn a call is the fork: backdoor Roth execution with existing IRA balances, mega backdoor plan review, and multi-account coordination in an RSU-heavy year.