401(k) vs. IRA for H1B Holders: Fund Which First?

Fund the employer match first if you get one. That’s a guaranteed, immediate return no IRA can match. After that, a Roth IRA makes sense if your income sits under the phase-out range. Push back to your 401(k) up to the annual max if it doesn’t, and use a backdoor Roth if you’re priced out of a direct IRA contribution. None of this changes based on citizenship or visa status. Access to both account types runs through your Social Security Number, and H1B status already includes one.

The funding order, in practice

For 2026, the IRS set the 401(k) employee deferral limit at $24,500 and the combined traditional-plus-Roth IRA limit at $7,500, both up from 2025. A reasonable sequence for most H1B holders looks like this:

1. Contribute enough to your 401(k) to capture the full employer match. This is the one step where skipping it has a clear, quantifiable cost.
2. Fund a Roth IRA up to $7,500, assuming your income is under the phase-out range. Full eligibility for single filers runs up to $153,000 MAGI in 2026.
3. Go back and push your 401(k) toward the $24,500 max, if your budget allows it.
4. If you’re above the Roth phase-out, swap step 2 for a backdoor Roth instead. Our backdoor Roth guide and the backdoor Roth calculator walk through the mechanics.

A worked example

Priya is on H1B, single, earning $105,000. Her employer matches 401(k) contributions dollar-for-dollar up to 4% of pay.

Step 1, capture the match. 4% of $105,000 is $4,200. Contribute that, and her employer adds another $4,200. That’s a 100% return before any market growth even happens.

Step 2, check Roth eligibility. Her MAGI of $105,000 sits under the $153,000 single-filer ceiling for 2026, so she can put the full $7,500 into a Roth IRA directly.

Step 3, the traditional IRA trap she avoids. Because she’s covered by a workplace plan, her traditional IRA deduction phases out between $81,000 and $91,000 MAGI for single filers in 2026. At $105,000, a traditional IRA contribution would be fully nondeductible. Money going in with no tax benefit attached is strictly worse than the Roth she already qualifies for. That’s why the order above says Roth specifically, not “IRA” as a generic placeholder.

Step 4, top off the 401(k). If cash flow allows, she raises her contribution rate toward the $24,500 max, stacked on top of the $4,200 already earning the match.

Total tax-advantaged room available to her this year: $24,500 plus $7,500, or $32,000, without touching a backdoor conversion at all.

Where visa status actually changes the math

Opening either account works the same way it would for a US citizen. What H1B status changes is the strategy, not the eligibility.

Vesting risk from job changes. Employer 401(k) matches often vest on a schedule. A 2-to-6-year graded schedule or a 3-year cliff are both common under ERISA plan rules. H1B holders often switch employers mid-PERM or mid-green-card-process, sometimes on a timeline set by their immigration attorney rather than their own preference. Leave before your match vests, and the unvested portion is gone. Check your plan’s vesting schedule before assuming that 4% match already belongs to you.

What “leaving the country” actually does. You don’t need to close a 401(k) or IRA to leave the US, lose H1B status, or move back to India. It stays invested. What changes is how distributions get taxed. Once you’re a nonresident alien, the plan administrator withholds 30% on distributions by default, per IRS rules on payments to nonresident aliens. The US-India tax treaty doesn’t wipe that out automatically, but structuring withdrawals as periodic payments and filing Form W-8BEN can reduce or eliminate the withholding under the treaty’s pension article. It’s worth a cross-border tax preparer’s time before you take a lump sum out of habit.

No totalization agreement with India. Some countries have a US Social Security totalization agreement letting partial work credits from both countries count toward eligibility. India isn’t one of them. Qualifying for any US Social Security benefit generally takes 40 credits, roughly 10 years of US work, earned entirely in the US system. If your US career ends up shorter than that, your 401(k)/IRA balance is the retirement asset. There’s no partial Social Security cushion filling the gap the way there might be for someone moving from, say, the UK or Germany.

Next step

Run your own numbers in the compound interest calculator to see what capturing versus missing an employer match actually compounds to over 20-30 years, or check the retirement calculator to see whether your current contribution rate is on pace for your target retirement income.