Fidelity, Charles Schwab deliver major message on 401(k)s, IRAs

People striving to build financially secure retirements would be wise to pay close attention to guidance from financial services firms such as Fidelity and Charles Schwab on 401(k)s and individual retirement accounts (IRAs).

Workers across the country are working to stretch their retirement savings as far as possible, striving to build the financial cushion they'll depend on once their careers end and their long‑anticipated plans take center stage.

During my years of reporting on retirement concerns, I have observed how people seek reliable information from established firms, especially when navigating complex savings decisions.

Fidelity and Schwab underscore the central role of 401(k) plans in long‑term financial planning, while also highlighting the importance of traditional IRAs and Roth IRAs for workers whose employers do not offer matching 401(k) contributions.

"Both traditional individual retirement accounts (IRAs) and Roth IRAs are retirement savings accounts designed to help you save for retirement," Fidelity wrote. "Traditional IRAs' and Roth IRAs' primary difference is the type of tax advantage you can receive for contributing to and investing in the account."

Employer-based 401(k) accounts have long served as the central pillar of many Americans' retirement strategies, according to Schwab.

"But what if you don't have access to a 401(k) through your employer?" Schwab asked. "In that case, your next best option could be a tax-advantaged IRA."

Fidelity explains traditional IRAs

A traditional IRA is an account that lets individuals save for retirement on a tax‑deferred basis, separate from any employer-sponsored plan.

"You can contribute up to the annual IRA contribution limit each year, and that money can be invested, potentially growing over time," Fidelity explained.

For 2026, the combined amount one can put into all of their traditional and Roth IRAs in a single year is capped at $7,500, or $8,600 if they are 50 or older, according to the Internal Revenue Service (IRS).

Fidelity explains tax advantages of traditional IRAs.

"If you're eligible, you can deduct your contributions from your federal taxes, putting more money in your pocket in the year you contribute," Fidelity wrote. "If you invest your traditional IRA dollars, any earnings would be tax-deferred and could be withdrawn penalty-free after age 59-and-a-half."

"As long as you have earned income in the current tax year, you can contribute to a traditional IRA," Fidelity added. "Even if you're covered by a workplace retirement savings plan, you can still save and invest through a traditional IRA."

Fidelity discusses Roth IRA advantages

A Roth IRA is a tax‑advantaged retirement account that individuals can open on their own, separate from any employer‑sponsored plan. Contributions are made with after‑tax dollars, and the money can then be invested with the potential to grow federally tax‑free.

"You can withdraw your contributions at any time, and you can withdraw any investment earnings federally-tax-free," Fidelity wrote.

Fidelity outlines three advantages of Roth IRAs:

• Access to contributions - Individuals may withdraw the amounts they have contributed to a Roth IRA at any time, with no taxes or penalties applied to those contributions.
• Tax‑free growth and qualified withdrawals - Investment earnings inside a Roth IRA can be taken out free of federal taxes and penalties once the saver reaches age 59-and-a-half and satisfies the five‑year rule, which requires at least five years to pass from the start of the tax year of the first Roth contribution before earnings can be withdrawn.
• No required minimum distributions - Unlike traditional IRAs, Roth IRAs do not require withdrawals at any particular age, allowing the account's investments to continue growing until the owner chooses to access the funds or leave them to beneficiaries.
  
  (Source: Fidelity Investments)

Charles Schwab clarifies key 401(k) facts

Employer‑sponsored 401(k) plans are widely viewed as the foundation of many workers' retirement strategies.

Most companies provide some level of matching contribution on what employees put into their 401(k)s - effectively adding money to a worker's retirement savings at no additional cost to them, according to Charles Schwab.

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"401(k)s have generous contribution limits that usually come out of your paycheck on a pre-tax basis," Schwab wrote. "In 2026, you can contribute up to $24,500, up from $23,500 in 2025."

"In addition, in 2026, there are two different kinds of catch-up contributions for those 50 or older," Schwab continued. "For those 50-59 or 64 and older in 2026, you can contribute an additional $8,000 to your 401(k), up from the $7,500 limit in 2025."

"And if you are 60 to 63 in 2026, you can contribute an additional $11,250. And that limit is unchanged from 2025."

Charles Schwab recommends IRAs for workers without 401(k)s

Some workers' employers do not offer 401(k)s. In that case, one ought to seriously consider IRA options, according to Charles Schwab.

This also applies to those who run their own businesses.

"If you're self-employed, you can also consider another type of IRA called a SIMPLE IRA or SEP-IRA," Schwab wrote. "These plans allow small business owners to set aside much more for retirement than a regular traditional IRA will allow."

"Whether you're saving in a regular traditional IRA, a Roth IRA, or other IRA, the tax advantages of these accounts can potentially put you ahead of where you'd be if you only put money in a taxable account."

IRA priorities can change with life stages

In financial planning, retirement accounts are often viewed as unchanging containers, but an IRA's role can also shift over the course of a person's life.

For a teenager earning income for the first time, a mid‑career worker navigating tax brackets, or a retiree preparing to pass assets to heirs, the most effective way to use an IRA may evolve.

Parents may encourage teens to earn income, giving them the ability to fund a Roth IRA. A child can contribute up to their earnings or $7,500, whichever is lower, according to Morningstar.

Because teens are typically in a 0% tax bracket, contributing after‑tax dollars carries no immediate cost, while the long‑term benefit is substantial.

"Early-career workers should contribute to a Roth IRA or a Roth 401(k)," Morningstar wrote. "At a minimum, they should contribute enough to their company's plan to capture the full employer match."

As people enter their 40s and 50s, they often reach their peak earning years, and the financial priorities shift accordingly. Instead of paying taxes upfront, the focus typically turns to deferring taxes while they are in a higher bracket.

"Highly paid workers should shift their focus to traditional IRAs and deductible 401(k)s," Morningstar wrote. "In 2026, investors can defer up to $24,500 ($32,500 if over 50) into a 401(k)."

The years between retirement and the start of required minimum distributions (RMDs) at age 73 often create a prime window for tax planning. Income typically drops during this period, placing many retirees in unusually low tax brackets.

"Retirees should use this low-income window to enact Roth conversions and move money from their traditional IRA to their Roth IRA, paying the tax at today's low rates," Morningstar wrote.

In the final phase, the objective is to keep overall taxes as low as possible while still meeting charitable intentions and providing for family.

"For their heirs, retirees can leave their Roth IRA to their kids (giving them 10 years of tax-free growth) and leave the traditional IRA to charity, which pays zero tax on the distribution," Morningstar wrote.

Related: Vanguard, IRS send critical message on 401(k)s, IRAs

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This story was originally published May 29, 2026 at 12:17 PM.