What is 401(k), Traditional IRA & Roth IRA - US?
The US offers three core tax-advantaged retirement accounts: 401(k) (employer-sponsored, often with company match), Traditional IRA (tax-deferred), and Roth IRA (tax-free withdrawals in retirement). Together they form the backbone of US retirement savings.
Formula
How to Interpret
Standard prioritization: (1) capture full 401(k) employer match (free money), (2) max Roth IRA if eligible, (3) max remaining 401(k), (4) taxable brokerage. Traditional accounts deduct contributions today, tax withdrawals later; Roth accounts pay tax today, withdraw tax-free. Roughly equivalent to India's NPS (Section 80C/80CCD) and ELSS funds, though contribution limits and tax treatment differ significantly.
Typical Ranges
Contribute at minimum to capture full 401(k) match (typically 3–6% of salary). Long-term: aim to save 15%+ of gross income across all retirement accounts.