401(k) vs IRA: Best Retirement Planning Strategies

When it comes to securing your financial future, choosing the right retirement accounts can make a difference of hundreds of thousands of dollars over your lifetime. At Atlantic Edge Wealth in Jacksonville, FL, we help clients navigate these decisions every day, turning complex retirement choices into clear, actionable strategies that align with long-term goals.

Understanding the differences between 401(k)s and IRAs is not just about picking an account. It is about building a foundation for the retirement you actually want. Here is what you need to know.

Understanding 401(k) Plans: Employer-Sponsored Retirement Planning

A 401(k) is an employer-sponsored retirement account that offers significant advantages for building wealth over time. For 2026, you can contribute up to $24,500 as an employee, with an additional $8,000 catch-up contribution if you are age 50 or older. That means workers 50+ can put away up to $32,500 in employee deferrals each year, with higher limits available when you include employer contributions.

Key Benefits of 401(k) Plans

• Higher contribution limits 

  The most compelling advantage of a 401(k) is the ability to save substantially more each year than in an IRA. Over decades, that extra tax-advantaged space can compound into a much larger nest egg.

• Employer matching contributions

  Many employers match a percentage of your contributions, essentially adding free money that accelerates your progress. A typical match of 50% on the first 6% of your salary can add thousands of dollars per year.

• Immediate tax benefits with traditional 401(k)s

  Traditional 401(k) contributions reduce your taxable income in the year you make them, which can lower your current tax bill while you save for the future.

• Automatic payroll deductions

  Contributions come directly from your paycheck, making consistent saving automatic instead of relying on willpower.

Potential Drawbacks of 401(k) Accounts

• Limited investment menus

  Many 401(k) plans offer a curated list of 10 to 30 mutual funds. That can be perfectly adequate, but it usually offers less flexibility than an IRA, which may provide access to thousands of stocks, bonds, ETFs, and funds.

• Withdrawal rules and RMDs

  • Early withdrawals before age 59½ are generally subject to a 10% penalty plus income taxes, with only limited exceptions.

  • Required minimum distributions (RMDs) from traditional 401(k)s generally begin at age 73 under current law, with the start age scheduled to rise to 75 for younger birth years.

  • Under current rules, Roth 401(k) and Roth IRA balances are not subject to lifetime RMDs for the original account owner, which can be very helpful for tax and estate planning.

IRA Options: Individual Retirement Accounts Explained

Individual Retirement Accounts (IRAs) give you personal control over your retirement savings, independent of your employer. The two main types are Traditional IRAs and Roth IRAs.

Traditional IRA Features

Traditional IRAs allow tax-deferred growth, and contributions may be tax-deductible depending on your income and whether you or your spouse are covered by a workplace plan.

• For 2026, the IRA contribution limit is $7,500 per year.

• Individuals age 50 or older can make an additional $1,100 catch-up contribution, for a total of $8,600.

Even if your income is too high to deduct your contribution, you can still use a Traditional IRA for non-deductible contributions and tax-deferred growth.

Who may benefit most:

• People who expect to be in a lower tax bracket in retirement.

• Those without access to an employer plan.

• Taxpayers who value the up-front deduction and are comfortable managing future taxable withdrawals.

Roth IRA Advantages

Roth IRAs reverse the tax timing. You contribute after-tax dollars, then, if certain conditions are met, qualified withdrawals in retirement are income-tax-free, including the growth.

This can be especially powerful for:

• Younger workers with long time horizons.

• Anyone who expects to be in a higher tax bracket later.

• Families focused on flexible, tax-efficient income and legacy planning.

Key features:

• Tax-free qualified withdrawals: Generally available once you are at least 59½ and have satisfied the Roth 5-year rule.

• No RMDs during your lifetime: Roth IRAs are not subject to lifetime RMDs for the original owner, which makes them very attractive for long-term planning and estate strategies.

• Roth IRA income limits in 2026: Your ability to contribute directly to a Roth IRA is limited at higher incomes. For 2026:

  • Single filers: the Roth IRA contribution phase-out range is $153,000 to $168,000 of modified adjusted gross income (MAGI).

  • Married filing jointly: the phase-out range is $242,000 to $252,000 of MAGI.

• Above the top of these ranges, you cannot contribute directly to a Roth IRA, although backdoor Roth strategies may still be available if they fit your situation and are executed correctly.

Strategic Combinations: Using Multiple Account Types

The best retirement planning usually does not pit 401(k)s against IRAs. Instead, it uses both to create:

• Tax diversification between pre-tax and after-tax accounts.

• Investment flexibility beyond what an employer plan alone can provide.

• Distribution flexibility in retirement when managing tax brackets and Medicare surcharges.

A Practical Priority Framework

For many high earners and professionals, a sensible sequence looks like this:

1. Contribute enough to your 401(k) to capture the full employer match. This is effectively an immediate, risk-free boost to your savings.

2. Max out a Roth IRA if you are eligible. Take advantage of tax-free growth and the absence of lifetime RMDs.

3. Return to your 401(k) and increase contributions toward the annual limit. Maximize all available tax-advantaged space in a high-quality plan.

4. Invest in a taxable brokerage account for additional savings. Use low-cost, tax-efficient investments and coordinate this with your overall tax strategy.

This framework balances immediate benefits, long-term tax efficiency, and investment flexibility, while still leaving room for customization around your income, plan quality, and goals.

Retirement Planning Considerations Beyond Account Choice

Tax Strategy Integration

Your retirement accounts should be managed within a broader tax plan.

Examples:

• Timing Roth conversions during lower-income years, early retirement, or gap years before RMDs and Social Security.

• Coordinating which accounts you draw from first in retirement to manage marginal tax rates and avoid unnecessary Medicare premium surcharges.

Social Security Timing

When you claim Social Security (as early as 62 or as late as 70) will interact with your 401(k) and IRA withdrawals. Larger taxable distributions from Traditional accounts can cause more of your Social Security benefits to be taxed.

Getting this sequencing right is often worth tens of thousands of dollars over a retirement.

Healthcare Planning Before Medicare

If you retire before age 65, you must bridge the gap until Medicare.

• Health Savings Accounts (HSAs) can be extremely valuable if you are in a high-deductible health plan. They offer:

  • Pre-tax contributions.

  • Tax-deferred growth.

  • Tax-free withdrawals for qualified medical expenses.

Used correctly, HSAs can function as an additional retirement account specifically targeted at healthcare costs.

Estate and Legacy Goals

Different accounts behave differently when you pass them to heirs:

• Traditional 401(k)s and IRAs 

  Distributions are typically taxable as ordinary income to heirs, and most non-spouse beneficiaries must fully distribute inherited accounts within a 10-year period under current SECURE Act rules.

• Roth IRAs 

  If the rules are met, beneficiaries generally receive income-tax-free distributions, although most non-spouse beneficiaries must still follow a required distribution schedule (often the same 10-year window). Because the original owner never has RMDs and growth can remain tax-free, Roth IRAs are often a prime vehicle for legacy planning.

A coordinated estate plan should factor in which accounts are used during your lifetime versus which are preserved for heirs.

Common Retirement Planning Mistakes to Avoid

• Leaving employer matches on the table 

  A surprising number of workers do not contribute enough to receive the full employer match. Over a full career, this can easily cost six figures in missed savings and compounding.

• Ignoring fees 

  Even seemingly small fees add up. Paying around 1% per year in investment or advisory fees, compared with a very low-cost alternative, can reduce your ending balance by 10 to 15 percent or more over a typical 30-year working career.

• Poor asset location

  Putting tax-inefficient investments (like high-turnover funds or taxable bonds) in taxable accounts, while using tax-advantaged accounts for already tax-efficient funds, can increase your lifetime tax bill.

• Not rebalancing 

  Over time, markets pull your portfolio away from its target allocation. Without periodic rebalancing, you may be taking more risk than you intend or leaving growth opportunities on the table.

• Emotional decision making 

  Panic-selling in downturns or chasing hot sectors usually leads to buying high and selling low. A disciplined process matters more than reacting to headlines.

How Much Should You Save for Retirement?

Many financial planners suggest targeting about 15 to 20 percent of your gross income for retirement savings over your working years, including employer contributions. The right number for you depends on:

• Current age and years until retirement.

• Desired retirement lifestyle and spending level.

• Expected Social Security and pension benefits.

• Other income sources (rental properties, business income, etc.).

• Health status, healthcare costs, and longevity expectations.

Starting earlier reduces how much you need to save each month.

A simple illustration, assuming a 7 percent average annual return:

• A 25-year-old saving $500 per month until age 65 could accumulate roughly $1.3 million.

• Waiting until age 35 to start requires a little over $1,000 per month (around $1,075) to reach a similar balance by age 65.

These are hypothetical examples for illustration only. Actual returns and outcomes will differ, but the message is clear: time and consistency matter as much as the account type.

Making Your Decision: 401(k), IRA, or Both?

For many people, the right answer is “both”, used strategically.

You might lean toward:

• Prioritizing 401(k) contributions when:

  • You have a strong employer match.

  • You are currently in a high tax bracket and value the deduction.

  • You want to save more than the IRA limits allow within tax-advantaged accounts.

• Emphasizing IRA contributions when:

  • You want broader investment options than your 401(k) offers.

  • You are in a relatively low tax bracket and want to focus on Roth contributions.

  • You value avoiding lifetime RMDs and want more control over how and when you withdraw assets.

The optimal mix depends on your income, age, tax situation, career trajectory, and goals. There is rarely a one-size-fits-all answer, which is why a coordinated plan matters.

Take Control of Your Financial Future

Building a solid retirement plan requires more than just opening accounts and setting up contributions. It requires:

• A coordinated tax and withdrawal strategy.

• Thoughtful investment design.

• Clear planning around Social Security and healthcare.

• Integration with your broader goals for family, lifestyle, and legacy.

At Atlantic Edge Wealth, we build personalized retirement strategies for professionals and families in Jacksonville and beyond. Our process analyzes your full financial picture, tests different scenarios, and creates a dynamic roadmap that can evolve as your life changes.

If you want clarity and confidence around your retirement plan, schedule a consultation with our team. We will help you evaluate your 401(k), IRA, and other accounts and turn them into a cohesive, tax-aware strategy that fits your life.

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Important Disclosures

This material is for informational and educational purposes only and is not intended as specific tax, legal, or investment advice. Tax laws, contribution limits, and retirement rules (including RMD ages and income thresholds) are subject to change. Hypothetical examples are for illustration only and do not represent the performance of any specific investment or strategy.

You should consult your tax advisor, attorney, and financial professional regarding your individual circumstances before making any decisions about contributions, Roth conversions, withdrawals, or estate planning.