The short answer
- 401(k) up to the full employer match.
- Then a Roth IRA, up to the limit.
- Then back to the 401(k) with anything left.
That order works for most new grads. Here's why, and when it changes.
How they differ
| 401(k) (traditional) | Roth IRA | |
|---|---|---|
| Who offers it | Your employer | You open it yourself at any brokerage |
| Tax break | Lowers taxable income now | Tax-free withdrawals in retirement |
| Employer match | Often | Never |
| 2026 contribution limit | $24,500 | $7,500 |
| Investment choices | The plan's menu | Nearly anything: index funds, ETFs |
| Getting your contributions back early | Usually penalties and taxes | Your contributions (not earnings) can come out anytime |
Why the Roth IRA usually comes second
Your income in your first few years is likely the lowest it will be in your career, so your tax rate is low too. Paying tax now at a low rate to never pay it again is usually a good trade. The Roth IRA also lets you pick low-cost index funds instead of whatever your 401(k) menu offers, and your contributions stay reachable in a real emergency.
When the answer changes
- No match at work: go straight to the Roth IRA first.
- High earner: Roth IRA eligibility phases out for single filers with modified adjusted gross income between $153,000 and $168,000 in 2026. Above that, a regular Roth contribution isn't allowed.
- Credit card debt or no emergency fund: deal with those first. A Roth IRA doesn't help if you're paying 22% on a card.
- Roth 401(k) available: it gives the Roth tax treatment at work with a much higher limit. Many grads use it in place of a Roth IRA for simplicity.
Opening a Roth IRA takes about 15 minutes at any major brokerage. Pick a broad, low-cost index fund or a target-date fund. The account is just a box; what's inside the box is what grows.
Have student loans too?
Whether extra money should go to loans or investing depends on your loan rate. Run your numbers in the loans-vs-invest calculator.
Questions
Can I have a Roth IRA and a 401(k) at the same time?
Yes. They have separate limits: in 2026 you can put up to $24,500 in a 401(k) and up to $7,500 in an IRA, as long as your income is under the Roth IRA limit.
Is a Roth IRA worth it on a $50,000 salary?
Usually yes. Your tax rate is likely low now, and Roth money grows and comes out tax-free in retirement. Get your 401(k) match first.
Can I take money out of a Roth IRA early?
Your contributions can come out at any time without tax or penalty. Earnings taken out early can be taxed and penalized, with some exceptions. It works as a last-resort backup, not a spending account.
What if I earn too much for a Roth IRA?
In 2026, single filers lose eligibility between $153,000 and $168,000 of modified adjusted gross income. Above that, a Roth 401(k) at work, if offered, has no income limit.