Retirement accounts explained: 401(k), IRA, Roth and 2026 limits

A retirement account is an ordinary investment account wrapped in a special tax status. Inside it you can hold the same index funds, stocks and bonds you could buy anywhere, but the US tax code treats the money differently: contributions may cut this year's tax bill, growth isn't taxed year by year, and in some accounts withdrawals in retirement are tax-free. In exchange, the government sets yearly limits on what goes in and rules about when it comes out.

Those trades matter more than most investing decisions. Over a working life, the tax treatment of the account can change your final balance by tens of thousands of dollars before you have picked a single fund. This guide explains the main US account types as they stand for tax year 2026: workplace 401(k) and 403(b) plans and employer matches, traditional and Roth IRAs, the SEP and SIMPLE plans for the self-employed and small businesses, health savings accounts, the 2026 contribution limits, required minimum distributions, and the penalty for early withdrawals and its exceptions.

Everything here describes US federal rules as published by the IRS for 2026. State income tax treatment varies, and some states tax retirement income differently from the federal system. This is general education, not tax advice. Your own situation can turn on details this page does not cover.

What makes an account a retirement account

Picture two accounts holding the same fund with the same return. The only difference is the label the IRS puts on them. In a regular taxable brokerage account, you invest money you've already paid income tax on, and every year you owe tax on the dividends and interest the fund pays, plus tax on any gains when you sell. In a tax-advantaged retirement account, none of that yearly tax applies while the money stays inside.

There are two basic designs:

• Traditional (pre-tax). Contributions are deducted from your taxable income, or taken out of your paycheck before income tax. The money grows untaxed. Every dollar you withdraw later, contributions and growth alike, is taxed as ordinary income.
• Roth (after-tax). Contributions get no deduction: you pay tax on that income today. The money grows untaxed, and qualified withdrawals in retirement are entirely tax-free, growth included.

Either way, the money isn't taxed while it compounds. That is the core benefit, and it is easy to underestimate.

A traditional account at an unchanged tax rate ends up exactly where a Roth does. Put $13,158 of pre-tax pay into a traditional account instead of $10,000 of after-tax pay into a Roth (both cost you the same $10,000 of take-home pay at 24%), and after 30 years and a 24% tax on the withdrawal you net the same $76,123. The choice between the two is a bet on your future tax rate, covered in depth in the Roth versus traditional IRA guide.

Workplace plans: 401(k), 403(b) and 457(b)

Most Americans who save for retirement do it through an employer. The plan's name comes from the section of the Internal Revenue Code that created it:

• 401(k): offered by private-sector companies.
• 403(b): offered by public schools, universities, hospitals and many nonprofits.
• Governmental 457(b): offered by state and local governments.
• Thrift Savings Plan (TSP): the federal government's version, for federal employees and the uniformed services.

They work much the same way. You choose a percentage of each paycheck to contribute, the money moves into your account before you see it, and you pick investments from the plan's menu, which often includes index funds and target-date funds that shift from stocks toward bonds as a chosen retirement year approaches. Most plans now offer both a traditional (pre-tax) option and a Roth 401(k) (after-tax) option, and you can usually split contributions between them.

Two features set workplace plans apart from IRAs: much higher contribution limits, and the employer match.

The employer match

Many employers add money to your account when you contribute. A match formula ties the employer's deposit to yours. Two common formulas are "50% of what you contribute, up to 6% of salary" and "100% of the first 3% plus 50% of the next 2%."

Employer matches usually go in as pre-tax money. SECURE 2.0 also lets plans that choose to offer it deposit matching money as Roth, which is taxed to you in the year it is contributed.

Vesting decides when the employer's money is truly yours. Your own contributions are always 100% yours. Employer contributions may vest over time, for example 20% a year over five years or all at once after three years. Leave before you're fully vested and you forfeit the unvested part. Your plan's summary plan description spells out its schedule.

What happens when you change jobs

When you leave an employer, your vested balance stays yours. You can usually leave it in the old plan, move it to your new employer's plan, or roll it over to an IRA. A direct rollover, where the money moves straight from one custodian to the other, is not taxed. If the plan pays you a check instead, it withholds 20% for federal tax, and you have 60 days to deposit the full amount, including the withheld 20% from other funds, to avoid tax on the shortfall. Cashing out a balance before 59½ generally means income tax plus the 10% additional tax described below.

Individual retirement accounts (IRAs)

An IRA is a retirement account you open yourself at a brokerage, bank or fund company, with no employer involved. You can choose from almost any investment the provider offers, which is often a wider menu than a workplace plan. To contribute you, or your spouse if you file jointly, need taxable compensation such as wages or self-employment income. You can contribute no more than you earned for the year. There is no maximum age for contributing.

There are two kinds:

Traditional IRA. Contributions may be tax-deductible. If neither you nor your spouse is covered by a workplace retirement plan, the deduction is available at any income. If you are covered, the deduction phases out as income rises. For 2026, the phase-out runs from $81,000 to $91,000 of modified adjusted gross income for a single filer, and from $129,000 to $149,000 for a married couple filing jointly when the contributing spouse is covered. Above the range you can still contribute, but without a deduction, and you must track that after-tax money on Form 8606.

Roth IRA. Contributions are never deductible, and qualified withdrawals are tax-free. Eligibility to contribute phases out with income. For 2026 the range is $153,000 to $168,000 for single filers and heads of household and $242,000 to $252,000 for married couples filing jointly. You can withdraw your own contributions (not the earnings) at any time without tax or penalty, and a Roth IRA has no required minimum distributions for the original owner.

You can fund both kinds in the same year, but the $7,500 limit (2026) is shared across all your traditional and Roth IRAs, not per account. Contributions for 2026 can be made until the tax-filing deadline in April 2027. The Roth vs traditional IRA: how to compare tax now and tax later page walks through the deduction and eligibility phase-outs with numbers, the Roth five-year rules and conversions.

Plans for the self-employed and small employers

Freelancers, sole proprietors and small businesses have their own options:

• SEP IRA (Simplified Employee Pension). Only the employer contributes, and a self-employed person is their own employer. Contributions can reach 25% of an employee's compensation, up to the $72,000 annual-additions limit for 2026. For a self-employed person, compensation is net self-employment earnings after certain adjustments, so the effective rate is lower than 25%. Any employees who qualify must receive the same percentage. It is cheap and simple to run.
• SIMPLE IRA. Designed for employers with up to 100 employees. Employees can defer up to $17,000 in 2026, with a $4,000 catch-up at 50 or older ($5,250 at ages 60 to 63). Some smaller employers qualify for a higher limit of $18,100. The employer must either match up to 3% of pay or contribute 2% for everyone eligible. Withdrawals within the first two years of joining can face a 25% additional tax instead of 10%.
• Solo 401(k). A 401(k) for a business owner with no employees other than a spouse. The owner can contribute as both employee (up to the $24,500 deferral limit) and employer, within the $72,000 total.

Health savings accounts: the retirement account in disguise

A health savings account (HSA) is not a retirement account by name, but it often works as one. You can contribute only while covered by a high-deductible health plan. For 2026 the limits are $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up from age 55 (Rev. Proc. 2025-19).

The tax treatment is unusually generous: contributions are deductible (or pre-tax through payroll), growth is untaxed, and withdrawals for qualified medical expenses are tax-free at any age. Before 65, a withdrawal for anything else is taxed as income plus a 20% additional tax. From 65 the 20% no longer applies, so non-medical withdrawals are simply taxed like a traditional IRA's. Many HSA providers let you invest the balance in funds rather than hold cash. IRS Publication 969 has the full rules.

The 2026 contribution limits

Sources: IR-2025-111 and Notice 2025-67 for the retirement-plan figures, Rev. Proc. 2025-19 for the HSA figures.

A few details make the table work in practice:

• The age rules use the calendar year. You can make age-50 catch-up contributions for any year in which you turn 50, even if your birthday is in December.
• The super catch-up is for ages 60, 61, 62 and 63. Someone who turns 60 to 63 during 2026 can defer up to $24,500 + $11,250 = $35,750 if the plan offers it. At 64 the regular $8,000 catch-up applies again.
• High earners' catch-ups must be Roth. Starting in 2026, if your FICA wages from the employer sponsoring the plan were more than $150,000 in 2025, any catch-up contributions you make to that plan must be Roth contributions (Notice 2025-67). Your regular deferrals can still be pre-tax.
• The deferral limit is per person, not per plan. If you work two jobs with two 401(k)s, your combined deferrals across both are capped at $24,500 (plus any catch-up).
• The IRA limit is separate. Contributing to a 401(k) doesn't reduce what you can put in an IRA, though it can affect whether a traditional IRA contribution is deductible.

Getting money out: penalties and exceptions

The tax breaks come with a deal: the money is meant for retirement. Under US federal law, a distribution from an IRA or a workplace plan before age 59½ generally owes a 10% additional tax on the taxable amount, on top of ordinary income tax. It is reported on Form 5329.

The IRS lists exceptions to the 10% additional tax (income tax usually still applies to pre-tax money). Some apply to both IRAs and workplace plans, some to only one:

The IRS page "Retirement topics: exceptions to tax on early distributions" has the full list, the conditions for each one, and a few rarer cases such as IRS levies and reservists called to active duty. The age-55 rule has a lower age of 50 for certain public safety employees.

Many plans also allow loans. A 401(k) loan is not a distribution, so there is no tax or penalty if you repay it on schedule, usually within five years. If you leave the job with a loan outstanding, the unpaid balance can become a taxable distribution. Not every plan offers loans.

Roth IRAs follow their own ordering rules: your contributions come out first and are never taxed or penalized. Earnings are tax-free only in a qualified distribution, which needs the account to have met a five-year holding period and you to be 59½ or older, disabled, or using up to $10,000 for a first home (or the money to go to a beneficiary after your death).

Required minimum distributions

The government eventually wants its deferred tax. Required minimum distributions (RMDs) force owners of traditional IRAs, SEP and SIMPLE IRAs, and workplace plans to withdraw a minimum amount each year once they reach the applicable age:

• 73 for people who reach age 72 after December 31, 2022. Under the July 2024 final regulations, people born from 1951 through 1958 have an applicable age of 73.
• 75 for people born on or after January 1, 1960.

The first RMD is due by April 1 of the year after you reach the applicable age; every later one by December 31. Delaying the first one to April means taking two in the same year. Each year's minimum is the prior December 31 balance divided by a life-expectancy factor from the IRS tables in Publication 590-B. At 75, that factor is 24.6, so a $500,000 balance requires about $20,325. Missing an RMD triggers a 25% excise tax on the shortfall, reduced to 10% if corrected within the IRS correction window (generally two years).

Roth IRAs have no RMDs during the original owner's lifetime, and since 2024 neither do Roth accounts inside workplace plans. Beneficiaries who inherit retirement accounts face their own distribution rules, often a 10-year deadline to empty the account.

A worker still employed at the applicable age can often delay RMDs from the current employer's plan until retiring, unless they own 5% or more of the business. That exception doesn't cover IRAs.

Choosing which account to fund

There is no single right order, but many people reason through the same questions:

1. Is there an employer match? Contributing enough to capture the full match is, in effect, an immediate return on those dollars before any investment gains.
2. Do I expect a higher or lower tax rate in retirement? Higher favors Roth; lower favors traditional. Uncertainty argues for some of each, which also gives you a choice of which pot to draw from later.
3. Am I eligible for an HSA? Its triple tax treatment is the most favorable in the code for anyone who can leave the money invested.
4. What does my plan offer? A workplace plan with only high-cost funds is a reason to weigh an IRA for money beyond the match. Fund costs compound as surely as returns do; see Expense ratios and fund costs: what you pay and how it compounds.
5. When might I need the money? Money for a goal well before 59½, such as a house in five years, may belong in a taxable account, though Roth contributions can be withdrawn without penalty.

Retirement accounts compared

How Finabase helps

Finabase is a research app. It doesn't open or hold retirement accounts, execute trades, or know your tax situation. What it can do is help you study what goes inside the account. A portfolio records the buys and sells you enter, and shows each position's cost, market value and gains, with a reports page for cash, dividends and period performance, so you can mirror a 401(k) or IRA allocation and follow it. The comparison page lines up funds you are weighing, such as a plan's S&P 500 index fund against its target-date fund, on the same rebased chart. Each fund's symbol page shows its quote, chart, profile and dividend history, and the Treasury page shows current government yields across the curve, a useful reference point for the bond side of an allocation.

For the ideas that make long-term accounts work, Compound interest: how growth on growth builds wealth explains the math of growth over decades, and Index investing: passive vs. active funds and what the data shows covers the low-cost funds many plans offer.

Frequently asked questions

How much can I put in a 401(k) and an IRA in 2026?

Up to $24,500 in a 401(k) and $7,500 in an IRA, and you can do both in the same year. Workers 50 or older can add $8,000 to the 401(k) ($11,250 instead at ages 60 to 63) and $1,100 to the IRA. A Roth IRA contribution also depends on your income, and a traditional IRA deduction depends on income if you're covered by a workplace plan.

Is a 401(k) match taxed?

Not when it goes in, if it is a pre-tax match, which most are. It's taxed as ordinary income when you withdraw it. If your plan offers Roth matching contributions and you choose them, the match is taxable income in the year it is deposited and can later come out tax-free in a qualified distribution.

What happens to my 401(k) if I quit?

Your vested balance stays yours. You can usually leave it in the old plan, roll it into a new employer's plan, or roll it into an IRA. A direct rollover isn't taxed; taking the cash before 59½ usually means income tax plus the 10% additional tax, unless you left the job in or after the year you turned 55.

At what age do I have to start withdrawing?

Required minimum distributions start at 73 for most people now retiring, and at 75 for anyone born in 1960 or later. The first one can wait until April 1 of the following year. Roth IRAs have no required withdrawals during the owner's lifetime.

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

Yes. Workplace plan participation never stops you from contributing to a Roth IRA; only your income does, through the 2026 phase-out ranges of $153,000 to $168,000 (single) and $242,000 to $252,000 (married filing jointly).

Summary

US retirement accounts are ordinary investment accounts with a special tax status. They let money compound without yearly tax, in exchange for annual limits and rules on withdrawals. Traditional accounts trade a deduction now for taxable withdrawals later; Roth accounts trade tax now for tax-free withdrawals later. For 2026 the main limits are $24,500 for 401(k)-type plans (plus catch-ups of $8,000, or $11,250 at ages 60 to 63) and $7,500 for IRAs (plus $1,100 at 50 and older). An employer match is pay you only receive by contributing, early withdrawals usually cost an extra 10% before 59½ unless an exception applies, and traditional balances must start coming out at 73 or 75. The account is the wrapper; what you hold inside it, and what it costs, still decides how much it grows.