A 401(k) and a brokerage account can hold the identical index fund. What differs is not the investment but the wrapper around it — how it is taxed, when you can reach it, and how much you may put in.
Those three differences are enough to make the ordering of contributions worth a meaningful amount of money over a career.
Tax treatment: the three regimes
A traditional 401(k) or IRA gives you a deduction now. The money goes in pre-tax, grows without annual taxation, and every dollar withdrawn is taxed as ordinary income. You have deferred the tax and converted future withdrawals into ordinary income regardless of how the gains arose.
A Roth 401(k) or IRA reverses it. You contribute after-tax dollars, and qualified withdrawals — after age 59 and a half with a five-year holding period satisfied — come out entirely tax-free, growth included.
A taxable brokerage account gets neither break, but it gets a different one. You owe tax annually only on dividends and realized gains, and long-term capital gains carry preferential rates: 0%, 15%, or 20% depending on taxable income. Unrealized appreciation is not taxed at all, so a buy-and-hold index investor can defer for decades without any account rules requiring otherwise.
The 2026 limits
The employee deferral limit for 401(k), 403(b), governmental 457 plans, and the federal Thrift Savings Plan is $24,500. Participants aged 50 and over may add a catch-up of $8,000.
A separate, higher catch-up of $11,250 applies to participants aged 60 through 63 under SECURE 2.0. It replaces the age-50 catch-up for those years rather than stacking on top of it.
IRA contributions are limited to $7,500, with a $1,100 catch-up at 50 and over. Roth IRA eligibility also phases out above certain income levels, and traditional IRA deductibility phases out for those covered by a workplace plan.
A taxable account has no limit at all, which is precisely why it becomes the destination once the tax-advantaged space is full.
The employer match, which is not really an investment question
If your employer matches contributions, that match is the highest-return item available and it is not close.
A 50% match on the first 6% of pay means that contributing 6% of a $80,000 salary — $4,800 — brings $2,400 of employer money. That is a 50% return before the market does anything.
No argument about expense ratios, fund selection, or tax treatment competes with that. Contributing less than the full match is declining part of your compensation.
Vesting schedules are the one caveat worth checking: some plans require a period of service before matched funds are fully yours.
Access, and the routes people do not know about
Retirement accounts generally impose a 10% penalty plus ordinary income tax on withdrawals before age 59 and a half. That is the headline restriction, and it is why people over-weight taxable accounts.
But the exceptions are broader than commonly believed. The rule of 55 permits penalty-free 401(k) withdrawals from the plan of an employer you separated from during or after the year you turn 55. Section 72(t) allows substantially equal periodic payments at any age. Roth IRA contributions — the amounts you put in, not the growth — can be withdrawn at any time without tax or penalty. There are also exceptions for qualified first-time home purchases from an IRA, higher education expenses, and certain medical costs.
A taxable account has none of these complications: sell whatever you want, whenever you want, and owe tax on the gain only.
Required minimum distributions
Traditional 401(k) and IRA balances become subject to required minimum distributions in your seventies, forcing taxable withdrawals on the IRS's schedule whether or not you need the money.
Roth IRAs have no RMDs during the owner's lifetime. Roth 401(k)s no longer do either, following a SECURE 2.0 change.
Taxable accounts have no RMDs ever, and carry a further advantage at death: heirs generally receive a step-up in basis, so unrealized gains accumulated over a lifetime can escape income tax entirely. Inherited traditional retirement accounts, by contrast, come with the deferred income tax still attached.
A defensible order
Contribute to the 401(k) up to the full employer match first, because nothing else returns 50% or 100% immediately.
Then clear high-rate debt, since paying off a 22% balance is a certain 22% return.
Then fund an HSA if you are eligible, which is the only account offering a deduction going in, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Then an IRA — Roth or traditional depending on your bracket now versus expected later — and then the rest of the 401(k) up to the annual limit.
Then the taxable brokerage account, which has no cap and no rules, and which is also where you should hold money you may need before retirement age.
This ordering is a widely used default, not a rule that fits everyone. Someone planning to retire at 45 needs far more in taxable accounts than the sequence implies, and someone in a very low bracket today may reasonably prefer Roth throughout. This is educational information rather than advice for your situation.