Retirement Accounts
401(k) vs IRA: Which Should You Fund First?
For most people, this is a sequencing decision, not an either-or decision. The right order depends on match dollars, fees, tax situation, and investment options.
Priority 1: capture the full employer match
If your employer offers a match, contribute enough to get all of it. Unmatched dollars are effectively part of your compensation.
Priority 2: evaluate IRA flexibility
IRAs often provide broader investment options and can have lower costs than some workplace plans. Roth IRA eligibility and deduction limits matter.
Priority 3: return to the 401(k)
After match and IRA strategy, increase 401(k) contributions toward your target savings rate. Automating increases each year helps sustain progress.
Simple sequence: 401(k) to match -> IRA (if suitable) -> 401(k) up to goal -> taxable investing.
What else should influence the choice?
- Current tax bracket vs expected retirement bracket
- Plan fees and fund selection quality
- Need for Roth vs pre-tax diversification
- Income level and contribution eligibility