Overview
- Recent guidance suggests shifting new savings to a traditional IRA or 401(k) in a temporary high-income year to capture the immediate tax deduction, then resuming Roth funding or pursuing conversions when income falls.
- Traditional accounts use pre-tax dollars that lower current taxable income and later face required minimum distributions, whereas Roth contributions are after-tax with tax-free growth and withdrawals and no RMDs.
- For 2026, contribution limits are $24,500 for 401(k) plans and $7,500 for IRAs, with many employers matching a portion of 401(k) contributions.
- Maintaining both a 401(k) and a Roth IRA provides tax diversification and flexibility across future tax brackets, according to experts.
- Rolling a 401(k) to an IRA is common but can reduce creditor protections, increase fees, and eliminate access to certain plan-specific investments.