401(k) vs. IRA vs. Brokerage Account: Which Comes First?

For example, Mia wants to start investing, but the first decision already feels confusing. Her employer offers a 401(k), an investing app suggests a Roth IRA, and a friend says a regular brokerage account is simpler. At first, each option sounds reasonable, so which one should come first?

The key is to see that all three are containers for investments, not investments themselves. A 401(k) comes through an employer, an IRA is one you open on your own, and a brokerage account is a flexible investing account with no special tax benefits. So in this lesson, we compare them with the official 2026 limits, show what 20 real years of investing looked like and explain the order many people follow.

The three accounts in one view

Simplified summary of IRS rules for 2026. Plans and providers have their own details, and catch-up limits apply at 50 and over.

Fortunately, these limits come straight from the IRS, which announced that for 2026 the 401(k) limit rises to $24,500 and the IRA limit to $7,500. Importantly, they are separate, so someone can contribute to both a 401(k) and an IRA in the same year.

The account is not the investment

Think of each account as a box with its own rules. In particular, the rules decide how much you can put in, whether you get a tax break and when you can take money out. However, what you put inside the box decides your risk and your return.

For example, if Mia buys $2,000 of the same S&P 500 fund in a Roth IRA and another $2,000 in a brokerage account, both will rise and fall together. In fact, the only difference is how taxes apply. Likewise, opening an IRA and depositing $1,000 does not mean she has invested. Indeed, if the money sits as cash inside the account, it will not grow like a fund. So two decisions always go together: which account, and which investments inside it. We explain the second one in Stocks, Bonds, Mutual Funds and ETFs.

How a 401(k) works

A 401(k) is a retirement plan offered by an employer. According to the IRS, it lets you send part of each paycheck into an investment account automatically, before you even see the money. Then you choose from the plan’s list of funds, which often includes index funds and target-date funds.

Traditional or Roth 401(k)

First, with a traditional 401(k), your contributions lower your taxable income today, and you pay tax when you withdraw in retirement. By contrast, with a Roth 401(k), if your plan offers one, you pay tax now and qualified withdrawals are tax-free later. Also, both share the same $24,500 limit. We compare the two tax approaches in detail in Roth IRA vs. Traditional IRA.

The employer match

In addition, many employers add money when you contribute. For example, suppose Mia earns $50,000 and her employer matches 50% of the first 6% of salary she puts in. If she contributes 6%, that is $3,000 a year, and her employer adds $1,500, so her account receives $4,500 before any investment growth.

However, check the vesting schedule. Your own contributions are always yours, but the employer’s money may only become fully yours after a few years of work. Fortunately, the Department of Labor’s guide, What You Should Know About Your Retirement Plan, explains how to find these rules in your plan documents.

How an IRA works

An individual retirement account, or IRA, is one you open yourself at a bank, broker or investing app, whether or not you have a workplace plan. Unlike a 401(k), however, you can usually choose almost any investment, from index funds to individual stocks.

On one hand, a traditional IRA may give you a tax deduction now, depending on your income and whether you have a workplace plan. A Roth IRA, on the other hand, gives no deduction today, but qualified withdrawals in retirement are tax-free. Still, Roth contributions have income limits, so high earners may not be able to contribute directly.

How a brokerage account works

In contrast, a taxable brokerage account is the simplest of the three. As Investor.gov explains, you open one at a brokerage firm and can buy stocks, bonds, mutual funds and ETFs. There is no yearly limit and no penalty for taking money out early, so it works well for goals before retirement, such as a home in ten years.

The trade-off, however, is taxes. Interest and dividends are usually taxable each year, and when you sell an investment at a profit, you may owe capital gains tax. However, according to the IRS, gains on investments you hold for more than a year generally qualify for lower long-term tax rates.

What 20 real years of investing looked like

Whatever account you choose, though, the investments inside will not grow in a straight line. The chart below uses the real yearly returns of the S&P 500 from 2005 to 2024, including the 2008 crash, to show what steady monthly contributions would have become.

How to use it: enter how much you would contribute each month and, if you have one, your employer’s match as a percentage of your contribution. Then compare the red line, which follows the real market, with the green line, which shows the same result at a steady average return.

Notice how the red line drops sharply in 2008 and again in 2022, while the green line rises smoothly. Yet both end in the same place, which is exactly the point: the average return is real, but the path is bumpy. Someone who kept contributing through 2008 was buying at low prices, which is one reason a 401(k) that invests automatically every paycheck can work so well.

Which account first? A common order

There is no single right answer. Still, many planners suggest a similar order for retirement saving:

1. Contribute enough to get the full 401(k) match. First, do not leave free employer money on the table.
2. Then fund an IRA. Next, an IRA often gives you cheaper and wider investment choices than the plan.
3. Go back to the 401(k). After that, raise your 401(k) contributions toward the $24,500 limit if you can.
4. Use a brokerage account for everything else. Finally, invest there for goals before retirement, or once tax-advantaged accounts are full.

Of course, this assumes you already have an emergency fund and no high-interest debt, as explained in Saving vs. Investing. Similarly, if your 401(k) has very high fees or poor fund choices, the IRA step may come first after the match. Either way, check the fees, as shown in Expense Ratios Explained.

Access to your money

Since retirement accounts exist for the long run, taking money out early usually costs you. The taxable part of a withdrawal before age 59½ often faces income tax plus a 10% additional tax, although there are some exceptions. Roth IRA contributions, however, can usually be withdrawn at any time without tax or penalty, while the earnings follow stricter rules.

That lack of easy access is not only a downside. For example, in a randomized study published in the Quarterly Journal of Economics, Tying Odysseus to the Mast, researchers found that people who chose a savings account that restricted withdrawals saved significantly more. In other words, a little friction can protect long-term money from short-term temptations. Still, keep your emergency money somewhere easy to reach, such as a high-yield savings account.

Common questions

Can I have a 401(k) and an IRA at the same time?

Yes, because the limits are separate, so in 2026 you could contribute up to $24,500 to a 401(k) and up to $7,500 to an IRA. However, a workplace plan can reduce or remove the tax deduction for a traditional IRA at higher incomes.

What happens to my 401(k) if I change jobs?

Generally, the money is still yours, apart from any unvested employer contributions. Usually, you can leave it in the old plan, move it to your new employer’s plan or roll it into an IRA. Cashing it out, by contrast, often triggers taxes and penalties.

Is a brokerage account worse than an IRA?

Not worse, just different. Admittedly, it has no tax benefits, but it also has no limits and no early withdrawal penalty. So it is often the right choice for goals before retirement.