This is educational content, not financial advice.

There is a right order to fund retirement accounts, and following it can be worth tens of thousands of dollars over a career without saving a single extra dollar. The order exists because the accounts are not equal: one comes with free money attached, another with better investment choices, and the trick is taking each benefit in sequence rather than dumping everything in one place.

The accounts themselves are simple. A 401(k) is your workplace plan, often with an employer match. An IRA is one you open yourself, with far more investment freedom. Most people should use both, in a specific order.

Step 1: Capture the full 401(k) match

If your employer matches contributions, this comes before everything, even before paying down moderate debt. A common match is 50 percent on the first 6 percent of your salary. On a $60,000 income that is up to $1,800 a year the company adds for free, an instant 100 percent or 50 percent return depending on the structure. No investment on earth reliably beats that.

Contribute exactly enough to get the entire match. Not more yet, just the match. Then move on.

Step 2: Max out an IRA

Once the match is captured, an IRA is usually the better next dollar. Workplace 401(k)s often have a narrow, sometimes expensive menu of funds. An IRA at any major brokerage lets you buy a low-cost total-market index fund directly. The 2025 limit is $7,000, or $8,000 if you are 50 or older.

This is also where you choose Roth or Traditional based on your tax outlook, lower rate now favors Roth, higher rate now favors Traditional. Either way, the wider, cheaper investment menu of an IRA tends to beat adding more to a limited 401(k) at this stage.

Step 3: Back to the 401(k)

If you still have money to invest after maxing the IRA, return to the 401(k) and push toward its much higher limit ($23,000 in 2025, plus catch-up if you are 50+). You lose the IRA's flexibility but gain a large tax-advantaged space, which matters once you are saving serious amounts.

The self-employed and no-match cases

No employer match? Skip step one and start with the IRA, then look at the 401(k) only if you want the higher limit. Self-employed? A SEP-IRA or Solo 401(k) lets you contribute far more than a standard IRA, often a large share of your income, which is one of the few genuine tax advantages of working for yourself.

One move this week: find out your exact employer match and confirm you are contributing at least enough to get all of it. If you are leaving any match unclaimed, fixing that today is the highest-return financial move available to you.

Sources

FAQ

What happens to my 401(k) employer match if I leave my job before it vests?

Most plans use a 3 to 6 year vesting schedule. Fidelity, Vanguard, and many company-administered plans use graded vesting, where you keep 20 percent per year starting at year two. If you leave after two years with a $5,000 match balance, you walk away with $2,000. Always check your Summary Plan Description before job-hopping to avoid forfeiting unvested funds.

How much does a 50 percent employer match on 6 percent of a $60,000 salary grow over 30 years?

That match equals $1,800 a year in free contributions. Invested at a 7 percent average annual return over 30 years, $1,800 per year compounds to roughly $170,000. Missing the full match for just five years costs around $25,000 in lost compounding at that rate. No other financial move offers a comparable guaranteed return before a single investment decision is made.

Can I contribute to both a Roth IRA and a 401(k) in the same year?

Yes. Contributing to a 401(k) does not reduce your IRA eligibility. In 2025 you can put up to $23,000 in a 401(k) and up to $7,000 in a Roth IRA, provided your modified adjusted gross income stays below the Roth phaseout, which begins at $150,000 for single filers and $236,000 for married filing jointly.

What is the Roth IRA income limit for 2025?

Single filers can make full Roth IRA contributions with a modified adjusted gross income up to $150,000 in 2025, with contributions phasing out completely at $165,000. Married filing jointly, the phaseout runs from $236,000 to $246,000. Above those limits, a backdoor Roth conversion using a nondeductible traditional IRA is the standard workaround used by high earners.

What is the SEP-IRA contribution limit for self-employed people in 2025?

A SEP-IRA allows contributions of up to 25 percent of net self-employment income, capped at $70,000 in 2025. A freelancer with $100,000 in net profit can shelter roughly $18,587 after the self-employment tax deduction adjustment. Contributions are tax-deductible, and the account can be opened and funded as late as your tax filing deadline, including extensions under Form 4868.