401(k)Traditional IRARoth IRA
Contribution limit2020: $19,500 if under age 50; $26,000 if 50 or older.

2019: $19,000 if under age 50; $25,000 if 50 or older.
2020 and 2019: $6,000 ($7,000 if 50 or older).

This is a combined contribution limit for all of your traditional and Roth IRAs.
Key pros
  • Employer match, if offered.
  • High annual contribution limit.
  • Contributions lower taxable income in the year they are made.
  • Eligibility is not limited by income.
  • Funds in a 401(k) may be less expensive than identical fund purchased outside of 401(k).


  • Large investment selection.
  • If deductible, contributions reduce taxable income in the year they are made.

  • Large investment selection.
  • Qualified withdrawals in retirement are tax-free.
  • Contributions can be withdrawn at any time.
  • No required minimum distributions in retirement.
  • Key cons

    • No control over plan and investment costs.

    • Limited investment selection.

    • Distributions in retirement are taxed as ordinary income, unless a Roth 401(k).

    • Required minimum distributions beginning at age 72.


    • Contribution limits are lower than a 401(k).

    • Deduction phased out at higher incomes if you or your spouse are covered by a workplace retirement account.

    • Distributions in retirement are taxed as ordinary income.

    • Required minimum distributions beginning at age 72.

  • Contribution limits are lower than a 401(k).
  • No immediate tax benefit for contributing.
  • Ability to contribute is phased out at higher incomes.
  • Bottom lineFund a 401(k) first if your company offers matching dollars. Fund an IRA or Roth IRA first if your 401(k) doesn't offer a match. If you max out the IRA, begin contributions to your 401(k).