Roth IRA vs 401(k)
Roth IRA
Individual after-tax retirement account, tax-free withdrawals
Younger workers and those expecting higher retirement tax rates
401(k)
Employer-sponsored pre-tax retirement account
Those with employer match and high current income
Short Answer
A 401(k) is an employer-sponsored retirement plan with a $23,000 annual contribution limit and pre-tax contributions. A Roth IRA is an individual account with a $7,000 limit and after-tax contributions — withdrawals are tax-free. Many experts recommend contributing to both.
Our Verdict
Contribute to your 401(k) at least up to the employer match, then max your Roth IRA. If income exceeds Roth limits, use the 401(k) fully.
Choose Roth IRA if
Younger workers and those expecting higher retirement tax rates
Choose 401(k) if
Those with employer match and high current income
Key Differences at a Glance
Key Differences
Roth IRA
$7,000
401(k)
$23,000🏆
Roth IRA
After-tax (tax-free withdrawals)
401(k)
Pre-tax (taxed on withdrawal)
Roth IRA
No
401(k)
Yes (free money)🏆
Roth IRA
No🏆
401(k)
Yes (at age 73)
Roth IRA
Yes ($146K+)
401(k)
No🏆
Pros & Cons
Roth IRA
Pros
- Tax-free growth and withdrawals in retirement
- No required minimum distributions (RMDs)
- Can withdraw contributions anytime penalty-free
- Great for those expecting higher future tax rates
Cons
- $7,000/year contribution limit (2024)
- Income limits (phases out above $146K single)
- No employer match
401(k)
Pros
- $23,000/year limit (2024)
- Employer match (free money)
- Pre-tax reduces current taxable income
- Automatic payroll deductions
Cons
- Taxed on withdrawal in retirement
- Required minimum distributions at 73
- Limited to employer's fund choices
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Frequently Asked Questions
Most advisors recommend: first contribute to 401(k) up to the employer match, then max the Roth IRA. If you can save more, go back to the 401(k).
Resources & Learn More
Dive deeper with these curated resources
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