Planning for retirement can feel like navigating a maze of rules, limits, and acronyms. But getting the basics right—especially when it comes to choosing between a traditional 401(k) and a Roth IRA—can have a major impact on your long-term wealth.

These two retirement savings vehicles are among the most popular, and for good reason. Each offers powerful tax advantages, but they do so in very different ways. Understanding how they work—and which one is better suited to your personal situation—is key to building a smart retirement strategy.

Let’s break it down.

The Case for the 401(k): Pre-Tax Contributions and Employer Match

The 401(k) is the workplace workhorse of retirement plans. Funded with pre-tax dollars, it reduces your taxable income today, giving you an immediate benefit. Those contributions grow tax-deferred, and you won’t pay a dime in taxes until you begin withdrawing funds in retirement.

What really makes the 401(k) shine is when the employer match. Many companies will match a portion of what you contribute, essentially giving you free money. For example, if your employer matches 50% of contributions up to 6% of your salary, and you make $80,000, you could be leaving $2,400 on the table by not participating.

In 2025, contribution limits are generous: up to $23,500 annually, plus an additional $7,500 in catch-up contributions if you’re 50 or older. And thanks to automatic payroll deductions, saving through a 401(k) is simple and consistent.

But it’s not all upside. The 401(k) has some trade-offs:

• Withdrawals in retirement are taxed as ordinary income.
• Required minimum distributions (RMDs) kick in at age 73.
• Investment choices are often limited to a set menu of mutual funds chosen by your employer.

Still, for high earners and those getting an employer match, a 401(k) is hard to beat.

The Roth IRA: Tax-Free Growth and Greater Flexibility

If the 401(k) is about saving taxes now, the Roth IRA is about avoiding them later.

With a Roth IRA, you contribute after-tax dollars—meaning there’s no immediate tax break. But down the road, qualified withdrawals in retirement—including both your contributions and earnings—are 100% tax-free.

That’s a powerful tool, especially if you expect to be in a higher tax bracket later in life.

Roth IRAs also offer greater control and flexibility:

• You’re not required to take RMDs at any age.
• You can withdraw your contributions (but not earnings) at any time without penalty.
• You have access to a much broader range of investment choices compared to most 401(k)s.

Of course, there are some limitations:

• Contribution limits are lower: $7,000 annually, or $8,000 if you’re 50+.
• Income limits apply. In 2025, contributions begin phasing out at $150,000 for individuals and $236,000 for married couples filing jointly.
• There’s no employer match, since Roth IRAs are opened and funded independently.

Which One Makes More Sense for You?

There’s no universal answer, but your current income, tax situation, and retirement goals can help point you in the right direction.

A 401(k) often makes more sense if:

• You’re in a high tax bracket and want the up-front tax deduction.
• You’re eligible for an employer match.
• You want to contribute more than the Roth IRA allows.

A Roth IRA may be a better fit if:

• You expect to be in a higher tax bracket later in life.
• You want tax-free withdrawals and more investment flexibility.
• You’re early in your career and currently in a lower tax bracket.

For younger investors, Roth IRAs can be particularly appealing. Paying taxes now, when your rate is lower, in exchange for tax-free growth over decades, can lead to a substantial nest egg in retirement.

Why Not Both?

One of the smartest strategies? Don’t choose—do both.

Using a 401(k) for its tax-deferral and employer match, and a Roth IRA for its tax-free withdrawals and investment flexibility, allows you to diversify your tax exposure in retirement.

This “tax diversification” can be invaluable. In retirement, you’ll have options—pull from the 401(k) if your tax rate is low, tap into the Roth if it’s high. It gives you control over your tax bill in retirement, something many investors overlook until it’s too late.

Final Thoughts: Match the Tool to the Goal

The 401(k) and Roth IRA are both powerful tools. The key is understanding how each fits into your broader financial plan.

If you’re getting a match, always prioritize that first—it’s free money. After that, consider a Roth IRA to diversify your tax strategy and give yourself more flexibility in retirement. And if you still have room to save, max out the 401(k) afterward.

Retirement planning doesn’t have to be overwhelming. With a clear understanding of these two options, you’ll be well-positioned to make smart, strategic decisions that can lead to a more secure and tax-efficient retirement.