Common Questions: I’m getting the full match in my 401(k) and want to invest more; should I put more into the 401(k) or switch to a Traditional IRA?
Q: I’m getting the full match in my 401(k) and want to invest more; should I put more into the 401(k) or switch to a Traditional IRA?
A: This is a smart question to ask and one I’ve heard before. As with many financial planning questions, the answer is: it depends.
You’ve got the first step down, which is to at least invest as much as your employer will match, because an employer match is essentially a 100% return on your money with no risk, and you simply won’t get that anywhere else.
But after you’ve maxed out the match, then what? Keep pouring more into the 401(k)? Or switch to an IRA? The choice will depend on a few things, so here is a decision tree to help guide you:
Step 1: Determine if you’re eligible to deduct your IRA contributions
The first thing to consider is your income, or your modified adjusted gross income to be exact. The higher your income, the more likely you will not be able to deduct the IRA contribution from your income. On the other hand, traditional 401(k) contributions are not subject to income limitations.
Refer to the current year’s deductibility limits. Here is 2026:
Single Filers
MAGI | Deduction Status |
$81,000 or less | Full deduction (up to your contribution limit) |
$81,001 – $90,999 | Partial deduction (phase-out applies) |
$91,000 or more | No deduction |
Married Filing Jointly
MAGI | Deduction Status |
$129,000 or less | Full deduction (up to your contribution limit) |
$129,001 – $148,999 | Partial deduction (phase-out applies) |
$149,000 or more | No deduction |
If your income excludes you from deducting your Traditional IRA contribution, the 401(k) may be the wiser choice, particularly if you’re looking to reduce your taxable income.
Step 2: Consider contribution limits
You have a lot more runway with 401(k)’s. In 2026, the contribution limit is $24,500 (with an extra catch-up contribution of $8,000 if you’re 50 or older).
The IRA contribution limit, on the other hand, is only $7,500 (extra $1,100 if you’re 50 or older).
So, as an example, if you make $150k and your employer matches 3%, that means you’re contributing $4,500 from your own salary. If you want to contribute more, you still have quite a bit of runway left: $20,000 more if you’re under 50, $28,000 more if you’re 50 or older.
Is it in your budget to contribute that much more? Then you’ll need to choose the 401(k) or a combination of the 401(k) and IRA.
Keep in mind, you can max out both your 401(k) and your IRA if it’s within your budget to do so.
Step 3: 401(k) vs IRA features
After you’ve considered tax deductibility and contribution limits, the last factor to consider are the advantages and disadvantages of the different account types:
Investment options: The traditional IRA wins here, as 401(k)’s generally have 20-30 investment choices, typically mutual funds and target date funds. With an IRA, the investment world is your oyster. Mutual funds, ETF’s, individual stocks, individual bonds; if the investment exists in the public market, you can likely buy it in your IRA.
Flexibility: An IRA is yours, and you can withdraw from it as you please. Of course, that will come with a tax liability and possibly a penalty if you’re under 59 ½, but there are certain cases where you can avoid the penalty; such as using the money for higher education.
With a 401(k) on the other hand, you need to go through the various rules of the plan sponsor to be able to withdraw any money. On the flip side of that coin, loans are typically available with a 401(k), but not with the IRA.
Withdrawals should be the last consideration, because ideally you never withdraw from any retirement account until you actually retire. Nevertheless, it’s good to know your options.
There is yet another option for you, and that is to potentially put extra money into a Roth 401(k) or Roth IRA, which I will cover in a separate article.
Bottom Line: If you’re already getting the full employer match from your employer, it will behoove you to either put even more into the 401(k), or to open a Traditional IRA and contribute to that. Hopefully this article helped make the choice a bit clearer.
Still have questions? Want to know if what you’re currently contributing will get you to financial independence? Give me a call or shoot me an email.
Ryan Page, CFP®, MBA®
Office & Text:720-826-1092
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
