401(k) vs Roth IRA

A 401(k) is an employer plan with pre-tax contributions and taxable withdrawals; a Roth IRA is an individual account with after-tax contributions and tax-free withdrawals. If your employer offers a match, contribute enough to get the full match before funding a Roth IRA.

Section 01

Key differences

  • 401(k): higher contribution limits, employer match, limited fund menu.
  • Roth IRA: tax-free growth, more investment choices, income limits.
  • Traditional 401(k) lowers taxable income now; Roth IRA lowers taxes later.
Section 02

Recommended order

First, fund the 401(k) up to the match. Then max a Roth IRA if you are eligible.

Section 03

FAQ

Can I have both?

Yes. Many people contribute to both.

Which is better for young earners?

Key takeaway

Roth is often better early in your career when your tax rate is lower.

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Model long-term contributions with the Roth IRA calculator

A Roth IRA account is funded with after-tax money, so contributions do not generally create a federal income-tax deduction. Qualified distributions can receive favorable federal tax treatment when applicable requirements are met. A projection adds planned contributions to the current balance and applies an assumed return. Market performance, fees, contribution timing, and withdrawals can make actual results materially different from the estimate.

Roth IRA contribution limits and income eligibility rules can change, so check current IRS guidance rather than relying on an older limit. When comparing a traditional IRA vs Roth IRA, consider current tax treatment, possible deductions, future distribution rules, and required minimum distribution rules. A Roth IRA vs 401k comparison should also address employer matching, investment choices, fees, creditor protections, and access to money. Complex conversion strategies may create tax consequences.

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