Both accounts build retirement wealth tax-efficiently — but they work in opposite directions. One saves you tax money now (on your paycheck today), the other saves you tax money later (in retirement). Understanding the difference could be worth tens of thousands of dollars over your career.
A 401(k) saves you tax money now — it reduces your paycheck withholding today but you pay taxes on withdrawals in retirement. A Roth IRA costs you the full tax now — but your withdrawals in retirement are 100% tax-free.
Here's exactly how each account affects your monthly take-home pay for a single filer earning $70,000 in Texas contributing $500/month ($6,000/year):
| Item | 401(k) — $500/mo | Roth IRA — $500/mo |
|---|---|---|
| Gross Monthly Pay | $5,833 | $5,833 |
| Federal Income Tax | −$614 (lower — pre-tax) | −$724 (full withholding) |
| Social Security | −$362 | −$362 |
| Medicare | −$85 | −$85 |
| Retirement Contribution | −$500 (payroll deduction) | $0 (paid separately) |
| Monthly Take-Home | $4,272 | $4,662 |
| Total Retirement Saved | $6,000/yr (401k) | $6,000/yr (Roth IRA) |
📌 Key Insight: The Roth IRA leaves you with a higher take-home paycheck — but that's because the tax hit already happened in your paycheck. You're paying the same total tax either way. The difference is when taxes are paid: now (Roth) or at retirement (401k).
| Account | Under 50 | Age 50–59 / 64+ | Age 60–63 (SECURE 2.0) |
|---|---|---|---|
| 401(k) / 403(b) | $23,500 | $31,000 | $34,750 |
| Roth IRA | $7,000 | $8,000 | $8,000 |
| Combined Max (both) | $30,500 | $39,000 | $42,750 |
Note: Roth IRA contributions phase out for single filers with MAGI above $161,000 (2026) and are eliminated above $176,000. There is no income limit for 401(k) contributions.
The key question is: Will you be in a higher or lower tax bracket in retirement than you are today?
Most financial advisors recommend a split approach for workers in the 22% bracket or below:
✅ The $7,000 Roth IRA Strategy: Even modest annual Roth IRA contributions compound dramatically over time. $7,000/year from age 25 to 65 at a 7% average return = over $1.5 million in completely tax-free retirement wealth. On that $7,000/year, you'd have paid roughly $1,540/year in taxes (at 22%) — a small price for decades of tax-free growth.
See exactly how different contribution amounts change your monthly take-home pay — all 50 states supported, 2026 tax data.
Open Paycheck Calculator →Yes. They are completely separate accounts with separate contribution limits. You can max out both a 401(k) ($23,500) and a Roth IRA ($7,000) in the same tax year — up to a total of $30,500 in 2026 (if under age 50), as long as you meet the Roth IRA income limits.
A Roth 401(k) is offered by some employers and combines the high contribution limits of a 401(k) ($23,500) with the after-tax, tax-free withdrawal feature of a Roth IRA. Unlike a Roth IRA, there is no income limit to contribute to a Roth 401(k), making it a powerful option for high earners who are phased out of the Roth IRA.
No. Roth IRA contributions are made with after-tax dollars, so they do not reduce your taxable income or your paycheck withholding. Only traditional 401(k) and traditional IRA contributions reduce your taxable income for the current year.
For 2026, the Roth IRA contribution limit begins to phase out at $161,000 MAGI for single filers ($236,000 for married filing jointly) and is completely eliminated at $176,000 ($246,000 for married). Above these limits, a "backdoor Roth IRA" strategy may still allow contributions through a traditional IRA conversion.