401(k) & IRA planning

With a Traditional 401(k) or IRA, contributions are generally made before tax — lowering your taxable income in the year you make them — and you pay ordinary income tax later, when you withdraw in retirement. With a Roth, you contribute money you've already paid tax on, and qualified withdrawals in retirement — including investment growth — come out entirely tax-free. The trade-off is simply when you pay the tax.

• When a Traditional account tends to suit. Taking the deduction now can be attractive if you expect to be in a lower tax bracket in retirement than you are today — for instance, a higher earner who expects more modest taxable income once they stop working.
• When a Roth tends to suit. Paying tax now can work in your favour if you expect your tax rate to be the same or higher later, or you value the certainty of a pot you can draw on tax-free. Roth IRAs also have no lifetime required minimum distributions for the original owner.
• Why many savers hold both. Splitting contributions gives you 'tax diversification' — the flexibility to draw from taxable and tax-free pots in retirement to manage your tax bill year to year. Roth IRA contributions are capped by income (below); Roth contributions inside a 401(k) are not.

Which way the balance tips depends on your own tax position now and the one you expect later — the kind of trade-off an advisor can model for your circumstances.

The IRS sets how much you can contribute each year and adjusts the figures for inflation most years. They sit at two levels — a higher cap for workplace plans like a 401(k), and a lower one for IRAs you open yourself. The two are separate, so you can generally pay into both in the same year.

• Annual limits (2026). You can contribute up to $24,500 to a 401(k), 403(b), or governmental 457 plan, and up to $7,500 across your Traditional and Roth IRAs combined. Employer contributions to a 401(k) don’t count toward your employee limit and can take the combined total higher.
• Catch-up contributions (age 50+). If you're 50 or older you can add a catch-up: an extra $8,000 to a 401(k) (a $32,500 total) and an extra $1,100 to an IRA ($8,600 total) for 2026. Under SECURE 2.0, savers aged 60–63 get a larger workplace catch-up of $11,250 — and from 2026, higher earners (over $150,000 the prior year) must make that workplace catch-up on a Roth basis.
• Income limits on IRAs. The ability to contribute directly to a Roth IRA phases out at higher incomes — for 2026, between $153,000 and $168,000 of modified adjusted gross income for single filers, and $242,000 to $252,000 for married couples filing jointly. Deducting a Traditional IRA contribution can also be limited if you or a spouse are covered by a workplace plan.

Two of the biggest practical wins in workplace saving are claiming any employer match in full, and handling old accounts well when you change jobs.

• Capturing an employer match. Many employers match a share of what you contribute — for example, 50 cents on the dollar up to a set percentage of salary. A match is effectively part of your pay, so contributing at least enough to receive it in full is a widely held baseline. Matched money may be subject to a vesting schedule before it is fully yours.
• Rolling over an old 401(k). When you leave a job you generally have four options for the balance: leave it in the old plan, roll it into your new employer’s plan, roll it into an IRA, or cash it out (which usually triggers tax and, before age 59½, a penalty). A direct rollover moves money between providers without it passing through your hands, avoiding withholding and the 60-day deadline that applies to indirect rollovers.
• What to check before you move an account. Differences in investment choice, fees, access to advice, creditor protection, and whether you hold company stock or after-tax money can all matter. Moving pre-tax money into a Roth account is a conversion — and taxable in that year.

• Leaving an employer match on the table. Contributing below the level needed to earn the full match means turning down money you are entitled to.
• Triggering early-withdrawal penalties. Withdrawals from most retirement accounts before age 59½ are generally taxed and hit with a 10% penalty, with limited exceptions. Cashing out a 401(k) at a job change is a common and costly version of this.
• Overlooking required minimum distributions. From age 73, Traditional accounts are subject to required minimum distributions — mandatory annual withdrawals. Missing one can mean a penalty. Roth IRAs are exempt for the original owner.
• Losing track of old accounts. Balances left scattered across former employers’ plans are easily forgotten and rarely reviewed. Consolidating can make them simpler to manage — though it’s worth weighing the trade-offs first.

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