401(k) vs IRA vs Roth IRA: which is best for retirement?

The four main retirement buckets

Most US retirement plans are built from a combination of these accounts:

• 401(k) / 403(b) — Workplace plan. Pre-tax contributions, tax-deferred growth, taxed as income on withdrawal. Often includes an employer match.
• Traditional IRA — Individual account. Tax-deductible contributions (income limits apply if you have a workplace plan), tax-deferred growth, taxed on withdrawal.
• Roth IRA — Individual account. After-tax contributions, tax-free growth, tax-free qualified withdrawals. Income limits to contribute directly.
• Taxable brokerage — No special tax treatment, but unlimited contributions, no early-withdrawal penalties, and favorable long-term capital gains rates.

The order most savers should fund them

A widely used priority list for US savers:

• 1. 401(k) up to the full employer match — Never leave the match on the table. It's an instant 50-100% return.
• 2. Pay down high-interest debt — Anything above ~7-8% APR usually beats market returns.
• 3. Max a Roth IRA ($7,000/yr) — Especially powerful if you expect higher tax rates in retirement or want tax diversification.
• 4. Max the 401(k) — The full $23,500 if you can.
• 5. Taxable brokerage — For early-retirement bridge money before 59½ and any extra savings.

Tax treatment: now or later?

The big strategic question is when you pay tax:

• Pay later (Traditional 401(k) / IRA) — Best if you expect a lower tax bracket in retirement than you're in today. Most high earners in their peak years fit this profile.
• Pay now (Roth IRA / Roth 401(k)) — Best if you expect the same or higher rates in retirement, or if you simply value certainty. Young savers and anyone in a low bracket today should lean Roth.

Tax diversification is a feature, not a tie-breaker

Having both pre-tax and Roth balances at retirement gives you flexibility to manage taxable income year by year — staying under IRMAA Medicare thresholds, qualifying for ACA subsidies before 65, or controlling Social Security taxation.

Access rules and the 59½ cliff

Most retirement accounts have a 10% early-withdrawal penalty before age 59½, with key exceptions:

• Rule of 55 — Leave your employer at or after 55 and you can tap that 401(k) penalty-free. Doesn't apply to IRAs.
• Roth IRA contributions — Your own contributions (not earnings) can be withdrawn anytime, tax- and penalty-free.
• 72(t) SEPP — Substantially Equal Periodic Payments from an IRA, locked in for at least 5 years or until 59½.
• Taxable brokerage — No age restrictions ever; just capital gains tax on withdrawal.

The combo strategy for early retirees

If you want flexibility to retire before 59½, you need a bridge — and a taxable brokerage or Roth contribution base is how you build it:

• Max 401(k) and IRA for tax-advantaged growth.
• Build a taxable brokerage to cover years 55-59½ (or earlier).
• Consider a Roth conversion ladder once retired — converting Traditional balances to Roth in low-income years.
• Claim Social Security strategically (62, 67, or 70) once your bridge runs down.

Run the numbers

Drop your contributions into the RetireSmart calculator to see compound growth, or jump to our Can I retire at 55 in the US? tool for a US-specific projection with Medicare and Social Security baked in.