Side-by-side comparisons
401(k) vs Roth IRA: which one wins on the numbers?
The setup
We invest $500/month for 30 years at 8% return. One goes into a traditional 401(k) with a 50% employer match up to 6% of a $60,000 salary. The other goes into a Roth IRA. Same money in, very different money out.
Option A
Traditional 401(k) + employer match
After 30 years
Final balance
$975,192
Total contributions$234,000
Total interest+$741,192
Tax & risk: Pre-tax now, taxed on withdrawal (~22% bracket).
Run this in the calculator →Option B
Roth IRA (no employer match)
After 30 years
Final balance
$750,148
Total contributions$180,000
Total interest+$570,148
Tax & risk: Post-tax now, tax-free on withdrawal.
Run this in the calculator →Difference
$225,044
Capture the full employer match first — it is a guaranteed 50–100% return that no investment can match. Then prioritize a Roth IRA for tax-free withdrawals. Once the Roth is maxed, return to the 401(k). The match alone makes the 401(k) win on raw dollars; the Roth wins on flexibility and lifetime tax bill.
Which is right for you?
If
Your employer matches 401(k) contributions
Then
Always contribute at least up to the full match — that is free money. Skipping the match is leaving 50–100% guaranteed return on the table.
If
You expect to be in a lower tax bracket in retirement
Then
Lean traditional 401(k) — pay tax later when your rate is lower.
If
You expect to be in the same or higher bracket in retirement
Then
Lean Roth IRA — pay tax now at your known rate, withdraw tax-free later.
If
You want flexibility (early access to contributions)
Then
Roth IRA wins. You can withdraw your contributions any time, tax- and penalty-free.
Key takeaways
- Employer match is the single highest-return investment available. Take it before anything else.
- Roth IRA contribution limit is much smaller ($7,000 in 2026) but gives tax-free retirement income.
- Withdrawal taxes on a traditional 401(k) can swing the math by 15–25% — model both tax scenarios.
FAQ
Should I do both a 401(k) and a Roth IRA?
+
Yes, if you can afford it. The classic priority order is: (1) 401(k) up to the full employer match, (2) max out the Roth IRA ($7,000/yr in 2026), (3) return to the 401(k) until you hit the $23,000 annual limit. This sequence captures free money first, then maximizes tax diversification in retirement.
What income limits affect Roth IRA contributions?
+
In 2026, single filers earning over $161,000 (modified AGI) can no longer contribute directly to a Roth IRA. Married filing jointly: $240,000. Above those thresholds, the backdoor Roth conversion is the standard workaround. Traditional 401(k) has no income limit.
Are 401(k) employer match contributions taxed?
+
Yes, employer match always goes into the traditional (pre-tax) 401(k) bucket — even if your own contributions are Roth 401(k). When you withdraw, the match portion is taxed as ordinary income. Plan accordingly: a 'Roth-only' employee still has a traditional balance from the match.