Roth IRA Compared to Roth 401k
A Roth IRA and Roth 401k have similar names, but the two plans have different rules and investment options. Both plans are designed to help you save money for retirement. You contribute a portion of each paycheck to your Roth account using after-tax dollars. When you're ready to retire, you can start taking money out of your Roth account tax-free, according to boston.com.
Other People Are Reading
-
Contribution Limits
-
You may contribute more money to a Roth 401k than to a Roth IRA. This is because the Roth 401k has much higher contribution limits. As of September 2010, you can contribute up to $16,500 per year to a 401k. Employees over 50 years old can contribute as much as $22,000 per year, according to Bankrate.com. With a Roth IRA, you may contribute only $5,000 per year. Employees 50 or older may contribute $6,000, according to Fairmark.com, a tax guide for investors.
Income Limits
-
A Roth IRA is not available to higher income taxpayers. If you are a single taxpayer whose income reaches $105,000 per year, the contribution limit on your IRA will begin to "phase out," according to Fairmark. Single taxpayers making more than $120,000 per year are not eligible to contribute to an IRA, as of September 2010. For a married couple, the income limit is between $166,000 and $176,000 per year. A Roth 401k does not have these restrictions.
-
Employer Contributions
-
A 401k is an employer-sponsored plan. An IRA is not. Many employers match the amount of money an employee contributes. For example, if you contribute $20 per week to your 401k, your employer might contribute $20 as well. With a Roth 401k, your contributions are taxed upfront. The money your employer contributes will not be taxed until after you retire. A Roth IRA does not have this option, according to boston.com.
Investments
-
With a Roth IRA, you have more investment options than with a Roth 401k. A Roth IRA allows you to take control over your account and invest it any way you want. You have the option to invest in individual stocks and bonds, according to Bankrate. With a Roth 401k, you must invest in one of the options on your employer's list of available investment options, according to Fairmark.
Withdrawals
-
With a Roth 401k, you must start taking money out of your account after you turn 70 years old. You can leave money in a Roth IRA forever. A Roth IRA can be passed down from generation to generation with no penalty. If you have money in a 401k that you don't want to use, you can roll that money over from the 401k into an IRA after you turn 70, according to Bankrate.
-
