Roth IRA, 401(k) or Brokerage Account: Which Comes First?
Read the full lesson page, check three ideas, then try its educational activity.
Read the lesson page
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Many guides start with enough 401(k) savings to collect any employer match, because a 50% match adds 50 cents to each matched dollar. An IRA often comes next, then more 401(k), then a taxable account. For 2026, savers under 50 can defer $24,500 into a 401(k) and $7,500 into IRAs. Your tax rate, debts and cash needs can change that.
Check your understanding
Question 1
In 2026, what is the most an employee under 50 can defer into a 401(k)?
- $7,500
- $24,500
- $8,000
- $4,400
Show the answer
Answer: B. $24,500 is the 2026 employee deferral limit; $7,500 is the IRA limit, $8,000 the catch up at 50 and over, and $4,400 the self only HSA limit.
Question 2
Your employer matches 50% of what you put in, up to 6% of a $60,000 salary. If you contribute 3%, how much match do you get in a year?
- $900
- $1,800
- $3,600
Show the answer
Answer: A. 3% of $60,000 is $1,800, and half of that is $900; contributing 6% would bring the full $1,800.
Question 3
Which Roth IRA withdrawal is qualified, so the growth comes out tax free?
- Any withdrawal, because Roth contributions were already taxed
- One made at age 62, seven years after your first Roth IRA contribution
- One made at age 45, three years after your first contribution, to pay off a car loan
Show the answer
Answer: B. Qualified means five tax years have passed since the first Roth IRA contribution and you are 59½, disabled, buying a first home (up to $10,000) or a beneficiary; the others fail one or both tests.
Practice this lesson
Enter a current age of 35, a retirement age of 65, a current balance of 0, an annual salary of $60,000, your contribution of 6%, an expected return of 6%, an employer match rate of 50%, a match up to 6% of salary and 0% annual salary growth. Note the estimated balance at 65. Then change your contribution to 3% and see how far the balance falls.
Write down what you learned
In your notes, state the idea in your own words, the evidence you checked, and one limitation. Use hypothetical figures or virtual money for any exercise.
Key takeaways
- A 401(k), an IRA and a taxable account can hold the same investments; they differ in tax, limits and access.
- For 2026 the IRS limits are $24,500 for 401(k) deferrals and $7,500 across all IRAs, with more for savers 50 and over.
- Traditional accounts give the tax break now; Roth accounts give it later, on qualified withdrawals that pass the five year rule.
- Roth IRA contributions phase out between $153,000 and $168,000 of income for single filers in 2026.
- Before 59½, most 401(k) and IRA withdrawals can face an extra 10% tax unless an IRS exception applies.
- Match, then IRA, then more 401(k), then taxable is one common order, built on assumptions that may not fit you.
AI responses are for educational purposes. Always verify with official course materials.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
Sources and reference material
Primary sources and original reference material for the concepts discussed on this page.
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 (news release, November 13, 2025)
- IRS: Retirement topics, IRA contribution limits (reviewed September 23, 2026)
- IRS: Retirement topics, catch up contributions (reviewed May 7, 2026)
- IRS: Roth comparison chart (reviewed September 4, 2026)
- IRS Publication 590-B
- IRS: Retirement topics, exceptions to tax on early distributions (updated December 11, 2025)
References added 14 October 2026.
