401(k) vs Roth IRA: Which Should You Fund First?
The answer is not one or the other. It is both, in a specific order. Here is the optimal sequence.
The optimal order: 1. Contribute to your 401(k) up to the employer match (free money). 2. Max out a Roth IRA ($7,000 in 2026). 3. Go back and max out the 401(k) ($23,500 in 2026). 4. If you still have money to invest, use a taxable brokerage. This order maximizes tax benefits and free money at every step.
Why the Employer Match Comes First
A 50% match up to 6% of salary is an instant 50% return on your money. No investment in history consistently matches that. If you earn $70,000 and contribute 6% ($4,200), your employer adds $2,100. That is $2,100 of free money every year. Skipping the match to fund a Roth IRA first is leaving money on the table.
Why the Roth IRA Comes Second
Roth IRAs grow tax-free and withdrawals in retirement are tax-free. You have already paid taxes on the contributions. If you are in a lower tax bracket now than you expect to be in retirement (likely for most young professionals), the Roth is mathematically superior. Plus, Roth IRAs have no Required Minimum Distributions, more investment options than most 401(k) plans, and you can withdraw contributions (not gains) penalty-free at any time.