IRA vs. 401(k): Key Differences and 2027 Limits
Figures checked November 14, 2026 against primary sources
A 401(k) is part of an employer's retirement plan; an IRA is an account you open yourself. Both give you a tax break for saving, and you can use both. For 2027 the IRS lets you put up to $25,500 into a 401(k) and up to $7,500 into an IRA. Which one suits you depends on what your employer's plan offers, your income and your filing status.
Table of Contents
The Short Answer
- 401(k): "a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts." "Employers can contribute to employees' accounts" (IRS).
- IRA: "a tax-favored personal savings arrangement" you open on your own "with a bank, insurance company, or other financial institution" (IRS Topic no. 451).
- 2027 limits: $25,500 for a 401(k), up from $24,500 for 2026. $7,500 for an IRA, the same as 2026.
- Both at once: the IRS sets the two limits separately, so a worker with a 401(k) can also save in an IRA. A workplace plan can limit the traditional IRA deduction (see below).
IRA vs. 401(k) Side by Side
| 401(k) | IRA | |
|---|---|---|
| Who sets it up | Part of your employer's plan | You, at a bank, insurance company or other financial institution |
| How you pay in | Salary deferrals from your paycheck | Your own deposits |
| Tax break on traditional contributions | Deferrals are excluded from taxable income (Roth deferrals are not) | Deduction, which a workplace plan can reduce or phase out |
| Who can contribute | Employees in the plan | Anyone with taxable compensation (or a spouse with it, on a joint return) |
| 2027 limit | $25,500 | $7,500 |
The tax break works differently. In a traditional 401(k), "Elective salary deferrals are excluded from the employee's taxable income (except for designated Roth deferrals)," so the money never shows up as taxable pay. With a traditional IRA you claim a deduction, and the IRS says that if you or your spouse "was covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated, depending on filing status and income." For how that deduction works in detail, see our traditional IRA guide.
To put money in a traditional IRA, "you, and/or your spouse if you file a joint return, must have taxable compensation," such as wages, salaries, tips or net income from self-employment.
2027 Contribution Limits
The IRS published the 2027 limits in news release IR-2026-136 and Notice 2026-66.
| Limit | 2026 | 2027 |
|---|---|---|
| 401(k), 403(b), governmental 457 and TSP employee deferrals | $24,500 | $25,500 |
| IRA contributions | $7,500 | $7,500 |
| IRA catch-up, age 50 and over | $1,100 | $1,100 |
The 401(k) has its own catch-up amounts for workers 50 and older; they are on our 2027 401(k) limits page. For this year's Roth IRA figures, see Roth IRA contribution limits 2026.
Can You Use Both?
Yes. The 401(k) limit and the IRA limit are separate amounts in the IRS release, and the IRS rules on the IRA deduction are written for people who are "covered by a retirement plan at work." Having a 401(k) does not block IRA contributions; it can only cut how much of a traditional IRA contribution you deduct.
How to split your savings between the two depends on your plan, your income and your filing status. Our guide to retirement plans compares the other account types too.
Withdrawals, Rollovers and RMDs
- Early withdrawals: "Taxable distributions from a traditional IRA or a Roth IRA made prior to age 59½ or before meeting a permitted exception may be subject to an additional 10% tax."
- Rollovers between IRAs: "You can only make one rollover from an IRA to another (or the same) IRA in any one-year period, regardless of the number of IRAs you own."
- Required minimum distributions: a traditional IRA owner must start taking money out "beginning by April 1 of the year after the year you reach age 73," or may owe an additional tax.
The rules above are the IRS rules for IRAs. This page does not cover 401(k) withdrawal rules; check your plan's documents before you take money out.
Roth IRA vs. 401(k)
A Roth IRA has an income limit on who can contribute. For 2027 the Roth IRA phase-out range is $158,000 to $173,000 for singles and heads of household (2026: $153,000 to $168,000) and $250,000 to $260,000 for married couples filing jointly (2026: $242,000 to $252,000).
A 401(k) can also take designated Roth deferrals, which are not excluded from taxable income the way traditional deferrals are. For the full comparison of the two Roth accounts, see Roth 401(k) vs. Roth IRA.
Sources & Methodology
- What an IRA is, where to open one, the compensation rule, single ownership, the one-rollover rule, RMD start and the additional 10% tax: IRS Topic no. 451, Individual retirement arrangements (IRAs), retrieved Nov. 14, 2026.
- 401(k) salary deferrals and employer contributions: IRS, 401(k) plans, retrieved Nov. 14, 2026.
- 2027 and 2026 limits, the IRA catch-up, Roth IRA phase-out ranges and the IRA deduction rule for workers covered at work: IRS news release IR-2026-136 and IRS Notice 2026-66, retrieved Nov. 14, 2026.
FAQ
Is an IRA or a 401(k) better?
Neither is better for everyone. A 401(k) allows far more each year ($25,500 in 2027 vs. $7,500) and can include employer money. An IRA is open to anyone with taxable compensation, including people with no workplace plan. Which is better for you depends on your plan and your taxes.
Can I have a 401(k) and an IRA at the same time?
Yes. The limits are separate. If you or your spouse is covered by a plan at work, your traditional IRA deduction may be reduced or phased out depending on filing status and income.
What is the IRA limit for 2027?
$7,500, unchanged from 2026, plus a $1,100 catch-up if you are 50 or older.
What is the 401(k) limit for 2027?
$25,500 in employee deferrals, up from $24,500 for 2026.
Can a married couple open a joint IRA?
No. "IRAs can't be owned jointly." Each spouse has their own IRA.
General information, not tax or investment advice. Limits and rules are from IRS Topic no. 451, the IRS 401(k) plans page and IR-2026-136, checked on Nov. 14, 2026. Your own choice depends on your plan, income and filing status.
