Retirement Guide
Roth IRA vs 401k — The Decision Framework
It's not either/or. Here's the order of operations that maximizes both.
The Speedrun Take
Do both. In order: (1) 401k up to employer match — that's 50–100% instant return. (2) Max Roth IRA ($7,000/year, 2024). (3) Return to 401k for remaining contributions. Skip the match and you're leaving free money on the table.
Side-by-Side Comparison
| 401k | Roth IRA | |
|---|---|---|
| Contribution limit (2024) | $23,000 ($30,500 if 50+) | $7,000 ($8,000 if 50+) |
| Tax on contributions | Pre-tax — reduces taxable income now | After-tax — no deduction |
| Tax on withdrawals | Taxed as ordinary income in retirement | Tax-free in retirement |
| Employer match | Yes — most employers match here | No employer match |
| Investment options | Limited to plan's fund menu | Any stock, ETF, or fund (you choose broker) |
| Required minimum distributions | Yes — must start withdrawals at age 73 | No RMDs during your lifetime |
| Best for | High earners wanting tax deduction now | Young investors expecting higher future taxes |
The Order of Operations
Follow this sequence. Each step unlocks more value than skipping ahead.
401k up to employer match
This is a 50–100% instant return on your money. If your employer matches 50 cents per dollar up to 6% of salary, contribute at least 6%. Never leave this money on the table.
Max Roth IRA ($7,000/year)
Income limit: ~$146k single / ~$230k married for 2024 (phase-out starts lower). Open at Fidelity, buy FZROX. Tax-free growth forever beats any other account type.
Max 401k ($23,000/year)
After the Roth IRA is maxed, go back to the 401k and contribute up to the annual limit. Even with limited fund options, the tax deferral is worth it.
Taxable brokerage if more to invest
No more tax-advantaged room? Open a taxable brokerage at Fidelity or any broker. Buy index funds, hold long-term — long-term capital gains rates are favorable.
Open Your Roth IRA at Fidelity
Buy FZROX at a 0% expense ratio — the cheapest way to fill your Roth IRA once the match is captured.
Roth IRA vs Traditional IRA
Both are IRAs — the difference is when you pay taxes. Roth is after-tax now, tax-free later. Traditional is pre-tax now, taxed later.
When Traditional IRA makes more sense:
- →You're in a high income bracket now (32%+) and expect to be in a lower bracket in retirement
- →You earn too much for a Roth IRA ($161k+ single in 2024) — look into a backdoor Roth conversion instead
- →You want to reduce your taxable income this year for other financial reasons
For most people early in their career — lower income now, higher later — the Roth wins every time.
When Each Account Wins
Roth IRA Wins When
- You're young — more time for tax-free compounding
- Low income year — tax rate is low, locking it in is smart
- Your employer's 401k has bad (expensive) fund options
- You want flexibility — Roth contributions (not earnings) can be withdrawn
- You expect tax rates to rise in the future
401k Wins When
- Employer match is available — always capture the match first
- High income — you want the tax deduction now
- Near retirement — fewer years for Roth compounding advantage
- You expect to be in a lower tax bracket in retirement
- 401k has good low-cost index funds available
Open Your Roth IRA
Start at Fidelity — FZROX at 0% Cost
Fidelity's FZROX has a 0% expense ratio inside a Roth IRA — the best combination available. Zero fees on contributions, zero fees on the fund, tax-free growth forever.