401(k), Roth IRA or Traditional IRA? A Plain-English Retirement Guide for 2026

The 2026 limits at a glance

• 401(k), 403(b), most 457 plans: $24,500 employee contribution; $8,000 extra catch-up from age 50; $11,250 catch-up instead for ages 60-63.
• IRAs (Traditional and Roth combined): $7,500, plus $1,100 catch-up from age 50.
• Roth IRA income phase-out: $153,000-$168,000 for single filers, $242,000-$252,000 for married couples filing jointly.

Step 1: get the full employer match

If your employer matches 50% of what you contribute up to 6% of salary, contributing 6% earns an extra 3% of your pay every year - an instant 50% return before any investment growth. Missing the match is the most common and most expensive retirement mistake.

Step 2: Roth or Traditional?

Traditional accounts give you a tax deduction now and tax the money when you withdraw it. Roth accounts use money you have already paid tax on, and qualified withdrawals - including all the growth - are tax free. The simple test: if you expect your tax rate to be higher in retirement, Roth usually wins; if you expect it to be lower, Traditional usually wins. Early in a career, with a low bracket, Roth is often attractive. Many people split between both for flexibility.

Step 3: build the safety net first

Before investing beyond the match, most planners suggest an emergency fund of three to six months of essential expenses and paying off high-interest credit card debt. Withdrawing from retirement accounts early can trigger taxes and a 10% penalty.

How much is enough?

A popular rule of thumb is to save about 15% of income for retirement, including any employer match. Benchmarks some planners use are roughly 1× your salary saved by 30, 3× by 40, 6× by 50 and 8× by 60. The 4% rule suggests that withdrawing about 4% of savings in the first year of retirement, adjusted for inflation afterwards, has historically lasted around 30 years - so $1 million supports roughly $40,000 a year before Social Security.

Small changes, big results

Raising your contribution by 1% each year - often timed with a raise - is barely noticeable in your paycheck but can add hundreds of thousands of dollars over a career, thanks to compounding. Low-cost index funds keep more of the growth in your pocket.

General information only, not investment advice. Speak to a licensed financial adviser about your situation.

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