{"id":451,"date":"2022-12-09T15:00:00","date_gmt":"2022-12-09T16:00:00","guid":{"rendered":"http:\/\/marshalllodge.co.uk\/?p=451"},"modified":"2023-11-23T15:19:41","modified_gmt":"2023-11-23T15:19:41","slug":"roth-ira-vs-roth-401k-choose-the-best-plan-for-you","status":"publish","type":"post","link":"http:\/\/marshalllodge.co.uk\/index.php\/2022\/12\/09\/roth-ira-vs-roth-401k-choose-the-best-plan-for-you\/","title":{"rendered":"Roth IRA vs. Roth 401(k) \u2013 Choose the Best Plan For You"},"content":{"rendered":"<p>When it comes to the Roth IRA vs. the Roth 401(k), there are many similarities to keep in mind. For example, both plans let investors build up tax-free income for retirement, yet both fail to offer any upfront tax benefits in the year you contribute.<\/p>\n<p>That said, there\u2019s one major difference between the Roth IRA and the Roth 401(k). One of these plans is an employer-sponsored plan, and the other is a self-directed account that you can open on your own if you\u2019re eligible.<\/p>\n<p>With that in mind, it\u2019s not surprising that the IRS allows certain specific benefits for each plan type. Read on to learn about the advantages of each of these accounts and other details to consider when you\u2019re looking at the Roth IRA versus the Roth 401(k).<\/p>\n<div class=\"gfc-table-of-contents gfc-table-of-contents-blockwrap gfc-blockwrap\">\n<div class=\"gfc-table-of-contents-title-container\">\n<h3>Table of Contents<\/h3>\n<\/div>\n<div class=\"gfc-table-of-contents-content\t-container\">\n<ul>\n<li><a href=\"#roth-ira-vs-roth-401k-the-similarities\">Roth IRA vs. Roth 401(k) \u2013 The Similarities<\/a><\/li>\n<li><a href=\"#differences-between-roth-ira-and-roth-401k\">Differences Between Roth IRA and Roth 401(k)<\/a><\/li>\n<li><a href=\"#roth-ira-vs-roth-401k-which-will-work-better-for-you\">Roth IRA vs Roth 401k: Which Will Work Better for You?<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n<h2 class=\"wp-block-heading\">Roth IRA vs. Roth 401(k) \u2013 The Similarities<\/h2>\n<p>On the surface, the two Roth plan types seem to be identical. Here are some of the main similarities you should know about before you consider opening one or both of these accounts.<\/p>\n<h3 class=\"wp-block-heading\">Both Provide Tax-Free Distributions in Retirement<\/h3>\n<p>The biggest distinguishing factor about these two Roth plans is the fact they create the opportunity to build up a tax-free income source in retirement. This benefit is available whether you have a Roth IRA or a Roth 401(k) plan.<\/p>\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\">\n<div class=\"wp-block-embed__wrapper\">\n<p><iframe loading=\"lazy\" title=\"Roth IRA vs Roth 401k - Which One is The Best? (Ask the CFP\u00ae)\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/ezExg_z2q90?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" allowfullscreen><\/iframe><\/p>\n<\/div>\n<\/figure>\n<p>In order to qualify for tax-free income in retirement, distributions that include earnings cannot be taken before you reach age 59 \u00bd. In addition, you must be participating in a Roth plan for a minimum of five years at the time distributions are taken. But, as long as you meet those two criteria, the distributions you receive from the plan will be tax-free.<\/p>\n<p>This makes Roth plans completely different from other tax-sheltered retirement plans, such as traditional IRAs and regular 401(k) plans. All other <a href=\"https:\/\/www.goodfinancialcents.com\/best-retirement-plans\/\" data-wpel-link=\"internal\" rel=\"noopener\">retirement plans<\/a> are merely tax-deferred. That means that, while you get generous tax benefits during the accumulation phase of the plan with a 401(k), you will have to pay ordinary income tax when you begin taking distributions in retirement.<\/p>\n<p>In this way, both Roth IRAs and Roth 401(k) plans provide excellent tax diversification strategies for retirement. This means either will allow you to have at least some tax-free income along with other income sources that are fully taxable.<\/p>\n<div class=\"wp-block-gfc-custom-blocks-gfc-get-started-link-block gfc-get-started-link-blockwrap gfc-blockwrap container get-started-link-wrapper undefined wide\">\n<div class=\"row\">\n<div class=\"col-md-12 d-flex align-items-center justify-content-undefined\">\n<div class=\"get-started-link-wrapper\"><a href=\"https:\/\/www.goodfinancialcents.com\/best-places-to-open-a-roth-ira\/\" class=\"get-started-link\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"internal\">Best Places To Open A Roth IRA<\/a><\/div>\n<\/div>\n<\/div>\n<\/div>\n<h3 class=\"wp-block-heading spacer\">Neither Offers Tax-Deductible Contributions<\/h3>\n<p>When you make a contribution to a Roth plan, whether it\u2019s a Roth IRA or a Roth 401(k) account, there is no tax deduction upfront. This is unlike both traditional IRAs and <a href=\"https:\/\/www.goodfinancialcents.com\/should-you-max-out-roth-ira-401k-hsa-which-do-you-max-out-first\/\" data-wpel-link=\"internal\" rel=\"noopener\">401(k) plans<\/a>, where contributions are generally fully deductible in the year they\u2019re made.<\/p>\n<p>In fact, tax-deductibility of contributions is one of the major reasons why people participate in retirement plans. If you use a plan that does let you deduct your contributions upfront (i.e. a traditional 401k retirement plan), you get to lower your taxable income in the year you contribute.<\/p>\n<h3 class=\"wp-block-heading spacer\">You Can Withdraw Your Contributions From either Plan at Any Time \u2013 Tax-Free<\/h3>\n<p>Another unique feature of both Roth accounts is the fact you can <a href=\"https:\/\/www.goodfinancialcents.com\/how-to-tap-your-ira-with-no-penalty\/\" data-wpel-link=\"internal\" rel=\"noopener\">withdraw your contributions at any time<\/a> without having to pay either ordinary income tax or the <a href=\"https:\/\/www.goodfinancialcents.com\/401k-early-withdrawal-penalties-distribution-rules\/\" data-wpel-link=\"internal\" rel=\"noopener\">10% early withdrawal penalty<\/a> on the distributions. This is in part because <a href=\"https:\/\/www.goodfinancialcents.com\/roth-ira-rules-contribution-limits\/\" data-wpel-link=\"internal\" rel=\"noopener\">Roth IRA contributions<\/a> are not tax-deductible at the time they are made. <\/p>\n<p>But it\u2019s also true because of <a href=\"https:\/\/www.irs.gov\/publications\/p590b\" data-wpel-link=\"external\" rel=\"external noopener noreferrer\">IRS ordering rules for distributions<\/a> that are unique to Roth plans. Those ordering rules enable you to take distributions of contributions ahead of accumulated investment earnings.<\/p>\n<p>There is some difference in exactly how early distributions are handled among Roth IRAs and Roth 401(k)s.<\/p>\n<p>Early distributions from Roth IRAs enable you to first withdraw your contributions \u2013 which were not tax-deductible \u2013 and then your accumulated investment earnings once all of the contributions have been withdrawn. This provides owners of Roth IRAs with the unique ability to access their money early, without incurring tax consequences.<\/p>\n<p>With Roth 401(k)s, on the other hand, the contribution portion of your plan can also be withdrawn free of both ordinary income tax and early withdrawal penalties. But since they\u2019re 401(k)s, they\u2019re also subject to pro-rata distribution rules.<\/p>\n<p>If you have a Roth 401(k) with $20,000 invested ($14,000 in contributions and $6,000 in investment earnings) then 30% ($6,000 divided by $20,000) of any early distribution that you take will be considered as investment income.<\/p>\n<p>If you take a $10,000 early distribution, $3,000 of it, or 30%, will be considered investment income and subject to both income tax and the 10% early withdrawal penalty. The remaining $7,000, or 70%, will be considered a withdrawal of contributions, and therefore not subject to tax or penalty.<\/p>\n<div class=\"wp-block-uagb-info-box uagb-block-d2c668da uagb-infobox__content-wrap  uagb-infobox-icon-above-title uagb-infobox-image-valign-top\">\n<div class=\"uagb-ifb-content\">\n<div class=\"uagb-ifb-icon-wrap\"><\/div>\n<div class=\"uagb-ifb-title-wrap\">\n<h3 class=\"uagb-ifb-title\">IMPORTANT NOTE:<\/h3>\n<\/div>\n<p class=\"uagb-ifb-desc\">Not all 401(k) plans permit early withdrawal of Roth contributions, for all the same reasons they don\u2019t permit early withdrawals from 401(k) plans in general. <\/p>\n<p>Many only allow for early withdrawals as either loans or hardship withdrawals. The rules we discussed above are IRS rules, not employer rules.)<\/p>\n<\/div>\n<\/div>\n<h3 class=\"wp-block-heading\">Both Offer Tax-Deferred Investment Returns<\/h3>\n<p>Despite the lack of contribution deductibility, both plans have one major feature in common with other retirement plans. With both the Roth IRA and the Roth 401(k), money contributed to the plans will accumulate investment income on a <a href=\"https:\/\/www.goodfinancialcents.com\/ask-gfc-005-do-tax-deferred-accounts-make-sense-if-tax-rates-will-be-higher\/\" data-wpel-link=\"internal\" rel=\"noopener\">tax-deferred basis<\/a>.<\/p>\n<p>So, how can an account that is supposedly tax-free in retirement, be merely tax-deferred during the accumulation phase?<\/p>\n<p>It comes down to early withdrawals. We\u2019ve already discussed how you can withdraw your contributions early from either a Roth IRA or Roth 401(k) without creating a tax liability. But if your distributions also include investment earnings, the situation is different.<\/p>\n<h3 class=\"wp-block-heading spacer\">Accumulated Investment Earnings Are Taxable if Withdrawn Early<\/h3>\n<p>Whether you have a Roth IRA or a Roth 401(k), if you take distributions from either plan that includes investment earnings (which it will under the pro-rata rules for the Roth 401(k)), and you are either under age 59 \u00bd or have been participating in the Roth plan for less than five years), those earnings will create a tax liability.<\/p>\n<p>Let\u2019s say you have been taking early distributions from your Roth plan. You have already withdrawn the full amount of your contributions to the plan. You continue taking distributions, but you are now withdrawing funds that represent accumulated investment earnings.<\/p>\n<p>Those withdrawals \u2013 the ones that are composed of accumulated investment earnings \u2013 will be subject not only to ordinary income tax but also the 10% early withdrawal penalty. In this way, early distributions from a Roth plan are handled the same way they are for other retirement plans, at least in regard to the withdrawal of investment earnings.<\/p>\n<h3 class=\"wp-block-heading spacer\">Distributions From Either Won\u2019t Affect the Taxability of Your Social Security Benefits<\/h3>\n<p>This is another advantage that applies to both the Roth IRA and the Roth 401(k) plan.<\/p>\n<p>Distributions from other retirement plans are added to your taxable income in retirement. Not only will those distributions be subject to income tax, but they will also affect your income in calculating how much of your <a href=\"https:\/\/www.goodfinancialcents.com\/how-to-maximize-social-security-benefits\/\" data-wpel-link=\"internal\" rel=\"noopener\">Social Security income<\/a> will be subject to income tax.<\/p>\n<p>Under current law, Social Security income is subject to income tax using a two-tiered calculation. If your combined retirement income falls below one of these limits, then your Social Security benefits are not taxable. However, if you are single and your combined income exceeds $25,000, then 50% of your <a href=\"https:\/\/www.ssa.gov\/benefits\/retirement\/planner\/taxes.html\" target=\"_blank\" rel=\"noreferrer noopener external\" data-wpel-link=\"external\">Social Security benefit will be taxable<\/a>.<\/p>\n<p>If you\u2019re married filing jointly and your combined income exceeds $44,000, then 85% of your Social Security benefit will be taxable.<\/p>\n<p>Note that the term \u201ccombined income\u201d refers to income from all other sources \u2013 investment income like interest, dividends, and capital gains; other retirement income, like pensions and distributions from traditional IRAs and 401(k)s; and any earned income.<\/p>\n<p>Amazingly, your Roth plan distributions don\u2019t count toward that calculation! For Social Security purposes, it\u2019s as if the distributions from your Roth plans don\u2019t exist. Since they\u2019re not taxable, they\u2019re not included in \u201ccombined income\u201d and will be excluded from the threshold calculations.<\/p>\n<p>This is yet another way Roth plans provide for tax diversification in retirement.<\/p>\n<div class=\"wp-block-gfc-custom-blocks-gfc-blue-callout-box-no-button-block container gfc-blue-callout-box-no-button-blockwrap gfc-blockwrap blue-callout-box-no-button-wrapper undefined wide\">\n<div class=\"row\">\n<div class=\"col-md-12 d-flex align-items-center justify-content-undefined\">\n<div class=\"blue-callout-box-no-button-wrapper\">\n<p class=\"blue-callout-box-no-button-message\"><strong>Your Roth plan distributions don\u2019t count toward that calculation!<\/strong> For Social Security purposes, it\u2019s as if the distributions from your Roth plans don\u2019t exist. <\/p>\n<p>Since they\u2019re not taxable, they\u2019re not included in \u201ccombined income\u201d, and will be excluded from the threshold calculations.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<h4 class=\"wp-block-heading\"><strong>Similarities Between Roth IRA and Roth 401(k)<\/strong><\/h4>\n<figure class=\"wp-block-table\">\n<table>\n<thead>\n<tr>\n<th>Feature<\/th>\n<th>Roth IRA<\/th>\n<th>Roth 401(k)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><strong>Tax-Free Distributions in Retirement<\/strong><\/td>\n<td>Available with Specific Conditions<\/td>\n<td>Available With Specific Conditions<\/td>\n<\/tr>\n<tr>\n<td><strong>Non-Deductible Contributions<\/strong><\/td>\n<td>No Upfront Tax Deduction<\/td>\n<td>No Upfront Tax Deduction<\/td>\n<\/tr>\n<tr>\n<td><strong>Tax-Free Early Withdrawals<\/strong><\/td>\n<td>Contributions Can Be Withdrawn Tax-Free<\/td>\n<td>Contributions Can Be Withdrawn Tax-Free<\/td>\n<\/tr>\n<tr>\n<td><strong>Tax-Deferred Investment Returns<\/strong><\/td>\n<td>Contributions and Investment Income Grow Tax-Deferred<\/td>\n<td>Contributions and Investment Income Grow Tax-Deferred<\/td>\n<\/tr>\n<tr>\n<td><strong>Social Security Benefits Not Affected<\/strong><\/td>\n<td>Distributions Don\u2019t Impact Social Security Taxability<\/td>\n<td>Distributions Don\u2019t Impact Social Security Taxability<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<p>That covers the similarities between Roth IRAs and Roth 401(k)s. But let\u2019s move on to the differences,<\/p>\n<h2 class=\"wp-block-heading spacer\">Differences Between Roth IRA and Roth 401(k)<\/h2>\n<p>Most of the differences between the Roth IRA and Roth 401(k) have to do with the fact the Roth 401(k) is offered as an employer-sponsored plan. That by itself creates a lot of differences, including the following.<\/p>\n<h3 class=\"wp-block-heading spacer\">Contribution Amounts<\/h3>\n<p>The maximum you can <a href=\"https:\/\/www.goodfinancialcents.com\/roth-ira-rules-contribution-limits\/\" data-wpel-link=\"internal\" rel=\"noopener\">contribute to a Roth IRA in 2023<\/a> is $6,500, or $7,500 if you\u2019re age 50 or older. This is an increase from previous years.<\/p>\n<p>That said, Roth 401(k) contributions are potentially more than three times higher!<br \/>The <a href=\"https:\/\/www.goodfinancialcents.com\/401k-contribution-limits\/\" data-wpel-link=\"internal\" rel=\"noopener\">employee contribution limit<\/a> for 2023 for a Roth 401(k) plan is $22,500 per year, or $30,000 if you are age 50 or older (up from $20,500 and $27,000 for 2022). If you participate in a 401(k) plan that also has a Roth 401(k) provision, you could actually contribute up to the maximum 401(k) contribution limit entirely to your Roth 401(k).<\/p>\n<p>Now, that doesn\u2019t mean you want to contribute the entire amount to the Roth portion. After all, the Roth 401(k), being a Roth plan, does not offer tax-deductible contributions. Depending on your age, $22,500 or $30,000 may be a lot of money to take out of your paycheck without getting a tax break. But, it still gives you a lot more room to allocate funds to a Roth plan than what you can with a Roth IRA account.<\/p>\n<h3 class=\"wp-block-heading spacer\">Employer Matching Contributions<\/h3>\n<p>As an employer-sponsored retirement plan, you can also get an <a href=\"https:\/\/www.goodfinancialcents.com\/ask-gfc-017-what-percentage-of-my-income-should-go-to-retirement\/\" data-wpel-link=\"internal\" rel=\"noopener\">employer-matching contribution<\/a> in a Roth 401(k) plan. Since the <a href=\"https:\/\/www.goodfinancialcents.com\/7-roth-ira-secrets-youll-wish-you-knew-sooner\/\" data-wpel-link=\"internal\" rel=\"noopener\">Roth IRA<\/a> is a self-directed account, the employer match does not exist.<\/p>\n<p>Though not all employers offer either the Roth 401(k) or even an employer matching contribution, the ones that do may not make a distinction between a regular 401(k) and the Roth portion. In that situation, if the employer offers a 50% match on your contribution, that means there will be a 50% match on the part of your contribution that goes into your Roth 401(k).<\/p>\n<p>There is one limitation on the employer match, however. Since a Roth 401(k) is a fully segregated account in your retirement plan, the employer cannot put matching contributions into that part of your plan. Instead, the employer match goes into your regular 401(k) plan.<\/p>\n<p>That means that, even if you were to allocate 100% of your 401(k) contribution into the Roth portion, you would still have a regular 401(k) if the employer offers a match.<\/p>\n<div class=\"wp-block-gfc-custom-blocks-gfc-blue-callout-box-no-button-block container gfc-blue-callout-box-no-button-blockwrap gfc-blockwrap blue-callout-box-no-button-wrapper undefined wide\">\n<div class=\"row\">\n<div class=\"col-md-12 d-flex align-items-center justify-content-undefined\">\n<div class=\"blue-callout-box-no-button-wrapper\">\n<p class=\"blue-callout-box-no-button-message\">That means even if you were to allocate 100% of your 401(k) contribution into the Roth portion, you would still have a regular 401(k) if the employer offers a match.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<p>While it would be an advantage to have the employer match going into the Roth 401(k) as well, that would create a tax problem. Since the employer match is not taxable to you when made, it would be taxable when you begin taking distributions from the plan. For this reason, you\u2019re better off having it in the regular 401(k) portion of your plan, where it will be tax-deferred.<\/p>\n<h3 class=\"wp-block-heading spacer\">Loan Provisions<\/h3>\n<p>Since a Roth 401(k) is part of an employer-sponsored plan, a loan provision may be available on it.<\/p>\n<p>Not all employers offer loan provisions on their 401(k) plans. But if they do, the IRS permits you to borrow <a href=\"https:\/\/www.irs.gov\/retirement-plans\/plan-participant-employee\/retirement-topics-loans\" data-wpel-link=\"external\" rel=\"external noopener noreferrer\">up to 50% of the vested balance of your account, up to a maximum of $50,000<\/a>. Naturally, if you do take the loan against your plan, you will have to make monthly payments, including interest, until the loan is repaid.<\/p>\n<p>Once again, since a Roth IRA is a self-directed plan, no loan provision is available.<\/p>\n<h3 class=\"wp-block-heading spacer\">Required Minimum Distributions (RMDs)<\/h3>\n<p>This is where a Roth IRA and a Roth 401(k) are completely different. IRS <a href=\"https:\/\/www.goodfinancialcents.com\/required-minimum-distribution-rules-ira-401ks\/\" data-wpel-link=\"internal\" rel=\"noopener\">required minimum distribution (RMD) rules<\/a> require that you begin taking mandatory distributions from your tax-sheltered retirement plan beginning at age 73. However, if the Secure Act 2.0 were to pass both houses of Congress and become law, the age you are required to begin taking RMDs could increase to 75 over the next decade,<\/p>\n<p>Whatever age you wind up having to take RMDs, withdrawals are based on a percentage calculated based on your remaining life expectancy at the age that each distribution is made.<\/p>\n<p>Either way, the difference between these two accounts is obvious here. <a href=\"https:\/\/www.irs.gov\/retirement-plans\/retirement-plans-faqs-regarding-required-minimum-distributions#2\" data-wpel-link=\"external\" rel=\"external noopener noreferrer\">Roth 401(k) plans are subject to RMD provisions<\/a>, whereas Roth IRA accounts are not.<\/p>\n<p>The benefit of not being required to take RMDs is you can allow your Roth IRA to grow for the rest of your life. This will enable you to leave a larger amount of money to your heirs upon your death.<\/p>\n<p>**<strong>A Roth IRA is an excellent strategy to avoid <a href=\"https:\/\/www.goodfinancialcents.com\/will-you-outlive-your-money\/\" data-wpel-link=\"internal\" rel=\"noopener\">outliving your money<\/a>. Since RMDs are not required, the money in a Roth IRA can be available for the later years of retirement, when other plans may have been severely drawn down.<\/strong><\/p>\n<h3 class=\"wp-block-heading spacer\">Income Limits<\/h3>\n<p>There are no income limits restricting your ability to make Roth 401(k) contributions. As long as you\u2019re participating in the 401(k) plan, you\u2019re able to make contributions to a Roth 401(k).<\/p>\n<p>However, this is not true with a Roth IRA at all. If your income exceeds certain limits, you will not be able to make a contribution to this type of account directly.<\/p>\n<p>For 2023, the <a href=\"https:\/\/www.irs.gov\/retirement-plans\/amount-of-roth-ira-contributions-that-you-can-make-for-2023\" target=\"_blank\" rel=\"noreferrer noopener external\" data-wpel-link=\"external\">Roth IRA income limits<\/a> look like this:<\/p>\n<ul>\n<li>Married filing jointly, or qualifying widow(er) \u2013 allowed up to an income of $218,000, partial contributions allowed between $218,000 and $228,000, after which no contribution is allowed.<\/li>\n<\/ul>\n<ul>\n<li>Married filing separately \u2013 partial contribution on an income up to $10,000, after which no contribution is allowed.<\/li>\n<\/ul>\n<ul>\n<li>Single, head of household, or married filing separately AND you did not live with your spouse at any time during the year \u2013 allowed up to an income of $138,000, partial contributions allowed between $138,000 and $153,000, after which no contribution is allowed.<\/li>\n<\/ul>\n<h3 class=\"wp-block-heading spacer\">Trustee and Investment Selection<\/h3>\n<p>This is another area that usually favors Roth IRA plans. As a self-directed account, a Roth IRA can be held with the trustee of your choosing. That means you can decide on an investment platform for the account that meets your requirements for both fees and investment selection.\u00a0<\/p>\n<p>You can choose a platform that charges low fees, as well as one that offers the widest variety of potential investments. You can even open your Roth IRA with one of the <a href=\"https:\/\/www.goodfinancialcents.com\/best-online-stock-brokers-for-beginners-small-investors\/\" data-wpel-link=\"internal\" rel=\"noopener\">best online brokerage firms<\/a>.\u00a0<\/p>\n<p>But with a Roth 401(k), since it\u2019s part of an employer-sponsored plan, you will likely have no choice in the matter. This is one of the biggest issues people have with employer-sponsored plans. The trustee selected by the employer may charge higher than normal fees.<\/p>\n<p>They also commonly restrict your investment options. For example, while you might choose a trustee for a Roth IRA that has virtually unlimited investment options, the trustee for a Roth 401(k) may limit you to no more than half a dozen investment choices.<\/p>\n<h4 class=\"wp-block-heading\"><strong>Differences Between Roth IRA and Roth 401(k)<\/strong><\/h4>\n<figure class=\"wp-block-table\">\n<table>\n<thead>\n<tr>\n<th>Feature<\/th>\n<th>Roth IRA<\/th>\n<th>Roth 401(k)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><strong>Contribution Amounts<\/strong><\/td>\n<td>Maximum $6,500 in 2023 ($7,500 if 50 or Older)<\/td>\n<td>Employee Contribution Limit $22,500 in 2023 ($30,000 if 50 or Older)<\/td>\n<\/tr>\n<tr>\n<td><strong>Employer Matching Contributions<\/strong><\/td>\n<td>Not Applicable<\/td>\n<td>May Include Employer Matching Contributions<\/td>\n<\/tr>\n<tr>\n<td><strong>Loan Provisions<\/strong><\/td>\n<td>Not Available<\/td>\n<td>May Offer Loan Provisions<\/td>\n<\/tr>\n<tr>\n<td><strong>Required Minimum Distributions (RMDs)<\/strong><\/td>\n<td>Not Required<\/td>\n<td>Subject to RMD Rules<\/td>\n<\/tr>\n<tr>\n<td><strong>Income Limits<\/strong><\/td>\n<td>Income Limits for Direct Contributions<\/td>\n<td>No Income Limits for Contributions<\/td>\n<\/tr>\n<tr>\n<td><strong>Trustee and Investment Selection<\/strong><\/td>\n<td>Flexible Trustee and Investment Selection<\/td>\n<td>Limited Trustee and Investment Options Under Employer Sponsorship<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<h2 class=\"wp-block-heading spacer\">Roth IRA vs Roth 401k: Which Will Work Better for You?<\/h2>\n<p>Fortunately, most people won\u2019t have to make a choice between a Roth IRA and a Roth 401(k). That\u2019s because <a href=\"https:\/\/www.irs.gov\/retirement-plans\/retirement-plans-faqs-on-designated-roth-accounts\" data-wpel-link=\"external\" rel=\"external noopener noreferrer\">current law allows you to have both<\/a>. That is, you can have a 401(k) plan with a Roth 401(k) provision and still fund a Roth IRA. You can do that as long as your income does not exceed the limits required for making a Roth IRA contribution.<\/p>\n<p>There\u2019s also a <a href=\"https:\/\/www.irs.gov\/retirement-plans\/plan-participant-employee\/retirement-topics-401k-and-profit-sharing-plan-contribution-limits\" data-wpel-link=\"external\" rel=\"external noopener noreferrer\">maximum combined limit for contributions to all retirement plans<\/a>. For 2023, it\u2019s $66,000, or $73,500 if you\u2019re 50 or older. The Roth 401(k), because it is part of a 401(k) plan in general, provides much higher contribution limits. This will enable you to save a very large amount of money. <\/p>\n<p>As well, you always have the choice to allocate some of your 401(k) contributions into a regular 401(k). That means that the portion contributed to the traditional 401(k) will be tax-deductible.<\/p>\n<p>Still, the big advantage to also having the Roth IRA is the fact you can access many more investment options. That means you can make the best of the investment selections offered within your 401(k) plan, but still expand your investing activities through your Roth IRA based on your goals.\u00a0<\/p>\n<p>Finally, don\u2019t forget that having a Roth IRA means you will already have an account in place if you leave your employer and need an account to transfer your Roth 401(k) into. In addition, you could also do a <a href=\"https:\/\/www.goodfinancialcents.com\/roth-ira-conversion-tax-rules\/\" data-wpel-link=\"internal\" rel=\"noopener\">Roth IRA conversion<\/a> of the balance that\u2019s in your traditional 401(k) plan.<\/p>\n<p>At the end of the day, all of this means that you should take advantage of both the Roth IRA and the Roth 401(k) plan if you have the option to do both.<\/p>\n<\/p>\n<\/p>\n<div class=\"wp-block-gfc-custom-blocks-gfc-get-started-link-block gfc-get-started-link-blockwrap gfc-blockwrap container get-started-link-wrapper undefined wide\">\n<div class=\"row\">\n<div class=\"col-md-12 d-flex align-items-center justify-content-undefined\">\n<div class=\"get-started-link-wrapper\"><a href=\"https:\/\/www.goodfinancialcents.com\/best-places-to-open-a-roth-ira\/\" class=\"get-started-link\" target=\"_blank\" rel=\"noopener noreferrer\" data-wpel-link=\"internal\">Best Places To Open A Roth IRA<\/a><\/div>\n<\/div>\n<\/div>\n<\/div>\n<p>The post <a rel=\"nofollow noopener\" href=\"https:\/\/www.goodfinancialcents.com\/roth-ira-vs-roth-401k\/\" data-wpel-link=\"internal\">Roth IRA vs. Roth 401(k) \u2013 Choose the Best Plan For You<\/a> appeared first on <a rel=\"nofollow noopener\" href=\"https:\/\/www.goodfinancialcents.com\" data-wpel-link=\"internal\">Good Financial Cents\u00ae<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>When it comes to the Roth IRA vs. the Roth 401(k), there are many similarities&#8230;<\/p>\n","protected":false},"author":1,"featured_media":237,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[11],"tags":[],"_links":{"self":[{"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/451"}],"collection":[{"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/comments?post=451"}],"version-history":[{"count":1,"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/451\/revisions"}],"predecessor-version":[{"id":452,"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/451\/revisions\/452"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/media\/237"}],"wp:attachment":[{"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/media?parent=451"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/categories?post=451"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/marshalllodge.co.uk\/index.php\/wp-json\/wp\/v2\/tags?post=451"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}