Roth IRA vs. 401(k): Comparing retirement account types

Understanding the key differences between retirement accounts can help you maximize tax advantages, meet your retirement savings goals, and help build a secure future.

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Key takeaways

Contribution limits favor 401(k)s: 401(k)s allow for much higher annual contributions than Roth IRAs, making them ideal if you want to save aggressively for retirement.
Flexibility vs. access: Roth IRAs offer more flexibility with withdrawals — contributions can be accessed penalty-free at any time. In contrast, 401(k)s have stricter early withdrawal rules unless certain conditions are met.
Income eligibility and employer match: Roth IRAs have income limits that may restrict high earners, while 401(k)s have no such limits and may even include employer matching, giving you a boost in savings potential.

Roth IRAs explained

A Roth IRA is an individual retirement account funded with after-tax dollars. Unlike traditional IRAs, Roth IRAs do not offer up-front tax benefits but, in return, offer tax-free withdrawals in retirement — given that you meet a few requirements.

Roth IRAs can be used in combination with other IRAs or as an alternative to (or in combination with) employer-sponsored retirement plans like a 401(k).

In order to enjoy the full benefits of a Roth IRA, it is also important to understand the contribution limits and income eligibility to see if you will benefit from this type of retirement account.

Roth IRA contribution and income limits

Roth IRA contribution limits are set annually by the IRS and apply to all types of IRAs.

For the 2024 and 2025 tax years, the IRA contribution limits are as follows:

Standard contribution limit: $7,000.¹
Catch-up contribution: An additional $1,000 in “catch-up contributions” is allowed for individuals age 50 and older, which totals to an $8,000 limit.²

When comparing Roth IRA and 401(k) contribution limits, a 401(k) may offer more flexibility if you plan to contribute larger amounts to your retirement account.

Aside from contribution limits, the IRS also sets annual income eligibility requirements based on your modified adjusted gross income (MAGI).

For 2025, the income limit for full contributions is a modified adjusted gross income (MAGI) below $150,000 for single filers or below $236,000 for married couples filing jointly.³

If your income exceeds these thresholds, your contribution limit will be reduced until you are no longer able to contribute. If you are interested in a full list of income thresholds, turn to our Roth IRA page.

When can I withdraw from a Roth IRA?

Like many retirement accounts, Roth IRAs have rules and limitations when it comes to withdrawals.

Roth IRAs allow penalty-free withdrawals on contributions at any time. Since you have already paid taxes on contributions, you will not be penalized or taxed if you need to access them.

If you want to make a withdrawal on contributions and earnings, there are some requirements you need to meet. If you make a withdrawal on contributions and earnings before age 59½, or before the five-year rule, you may face taxes and penalties.

The IRS can sometimes make exceptions on early withdrawal penalties if you meet certain requirements.

Once you’ve reached age 59½ or it's been at least five years since your first deposit, you can enjoy tax- and penalty-free withdrawals on your earnings.

Flexible withdrawals may be one of the advantages of a Roth IRA vs. 401(k) if you think you might need to access your retirement funds before you retire.

Unlike traditional IRAs and 401(k) plans, Roth IRAs do not have any required minimum distributions. This means you can choose to make withdrawals as you please. You may also opt to let your account continue to grow as long as you live.

Since Roth IRAs do not have any RMDs, they can also be passed down to an heir, who would inherit the account with tax benefits. This would also be important to note to ensure your beneficiary, estate plan, and digital estate are up-to-date.

Pros and cons of a Roth IRA

Let’s consider some advantages and disadvantages to Roth IRAs.

Pros:

Accessibility: Since Roth IRAs are not tied to your employer, you can still open one if you have an earned income and meet income eligibility criteria.
Flexible investment options: Roth IRAs tend to have a wider range of investment options, giving you the flexibility to diversify your investment portfolio and potentially increase your earnings.
Flexible withdrawals: You can access your contributions at any time with a Roth IRA. Penalty fees still apply to early withdrawals of earnings.
Tax benefits: Qualified withdrawals in retirement are tax-free.
No RMDs: There are no RMDs on Roth IRAs, meaning your account can continue to grow as long as you choose.

Cons:

Income eligibility requirements: If your income is over the annual income threshold, you will not be able to contribute to a Roth IRA.
Early withdrawal penalties: Withdrawing earnings before 59½ or within the first five years of your first contribution will result in penalty fees.
No guaranteed returns: Returns on your contributions may vary with market fluctuations.
No upfront tax benefits: Contributions made to Roth IRAs are not qualified to receive tax deductions.
Lower contribution limits: When comparing Roth IRA vs. 401(k) contribution limits, Roth IRAs have significantly lower contribution limits.

401(k)s explained

A 401(k) is a tax-advantaged, employer-sponsored retirement plan. It allows employees to save and invest a portion of their paycheck — before or after taxes are taken out, depending on the account type — into their retirement account.

When signing up for a 401(k), an employee agrees to deposit a certain percentage of each paycheck directly into their account. Employers may often match employee contributions, allowing your money to grow even faster. Some plans even have a mandatory match in place.

Similar to IRAs, the money in your 401(k) grows through investments. However, when comparing Roth IRAs vs. traditional 401(k)s, 401(k)s may have more limited investment options, because they are often chosen by the employer. Investment options may also include stocks, bonds, mutual funds, target-date funds, and more.

The two main types of 401(k)s include traditional and Roth 401(k). Let’s see how they compare.

Roth 401(k)

Like a Roth IRA, a Roth 401(k) is funded using after-tax dollars, meaning that contributions grow tax-free.

While the two Roth accounts may be similar, there are still significant differences when comparing a Roth 401(k) vs. Roth IRA.

Roth 401(k) plans also allow your employer to match contributions — however, employer matches typically go into a traditional 401(k) on a pre-tax basis and allow you to move them to a Roth account later.

Like a Roth IRA, you would also need to follow the five-year rule and be at least age 59½ to make tax-free withdrawals on earnings.

Withdrawals on contributions, however, are not that flexible. Unless you meet certain “hardship requirements,” you could be subject to an early withdrawal fee.

When comparing a Roth IRA vs. Roth 401(k), Roth IRAs may offer more flexibility on early withdrawals. This is important to consider if you think you will need to access your retirement funds before you qualify for tax-free withdrawals.

A Roth 401(k) follows the same IRS contribution limits as a traditional 401(k). If your employer offers both Roth and traditional 401(k) plans, this contribution limit would also apply across both accounts.

401(k) contribution limits

Annual contribution limits for 401(k) accounts are set by the IRS. When comparing Roth IRA vs. 401(k) contribution limits, one of the biggest differences is that 401(k)s have higher limits.

The contribution limits for 2025 are $23,500 for employees under 50.⁴ Those who are over 50 may contribute an additional $7,500 in catch-up contributions, or an extra $11,250 for those age 60 – 63.⁴

Annual contribution limits apply across all 401(k) accounts. It may also be important to note that employer contributions do not count towards your annual limit.

Contribution limits are important to consider when comparing 401(k) vs. Roth 401(k) vs. Roth IRA account options if you are someone who wants to save more aggressively for retirement.

401(k) withdrawal rules

Another important distinction between 401(k)s vs. Roth 401(k)s vs. Roth IRAs is the withdrawal rules.

In order to avoid withdrawal penalties, you must be at least 59½ or qualify for an IRS hardship withdrawal. If you want to make early withdrawals, you will face a 10% penalty and tax fees.

To make penalty-free withdrawals on Roth 401(k)s, you must meet the age and five-year rule requirement.

There are also exceptions if you become disabled or if withdrawals are made by a beneficiary after you pass away.

401(k) required minimum distributions

Traditional 401(k)s are subject to RMDs once you reach age 73, with your first RMD to be taken by April 1 of the year after you turn 73.⁵ Subsequent RMDs must be taken annually by December 31st.⁵

As of 2024, Roth 401(k)s no longer have RMDs⁵, aligning them more closely to Roth IRAs.

Pros and cons of a 401(k)

Here are some advantages and potential disadvantages of 401(k)s to consider when comparing the benefits of a Roth IRA vs. 401(k).

Pros:

Tax benefits: Similar to IRAs, traditional 401(k)s allow for tax-deferment on contributions or qualified tax-free withdrawals during retirement for Roth 401(k)s.
Contribution limits: Contribution limits — including catch-up contributions for those over 50 — are much higher than Roth IRA limits.
Employer match: Employer match contributions can help accelerate your account growth.
Payroll deductions: Automatic contributions can help you save more consistently.
No income eligibility: Unlike Roth IRAs, you don’t need to meet income eligibility. If your employer offers a 401(k), then you can choose to open an account.

Cons:

Accessibility: 401(k) plans are only an option if your employer offers them.
Limited investment options: Since investment options are limited to a portfolio made by your employer, you may have less freedom to choose where you want to invest your funds.
RMDs: You are required to make withdrawals on a traditional 401(k) account starting at age 73.
No guaranteed returns: Like Roth IRAs, earnings on contributions can vary with market conditions.

Comparing Roth IRAs vs. traditional 401(k)s

Since we have covered information on different types of IRA and 401(k) accounts, like Roth vs traditional accounts, let’s see a side-by-side comparison to get a better overview.

Feature	Roth IRA	Traditional 401(k)
Who can open an account?	Income limits apply	Only through participating employers
Tax treatment on contributions	After-tax	Pre-tax, with possible tax deductions
Tax treatment on withdrawals	Tax-free if qualified	Taxed as normal income
2025 contribution limits	$7,000 if under 50¹, or up to $8,000 if 50+²	$23,500 if under 50,⁴ additional $7,500 in catch-up contributions if 50+, or an extra $11,250 for those age 60 – 63⁴
Income eligibility	Yes, phased out above $150,000 for single filers or $236,000 for joint filers³	No income limits
Investment choices	Broad	Limited employer chosen options
Employer match	N/A	Often available
Required minimum distributions (RMDs)	No	Yes, starting at age 73
Withdrawal rules	Contribution withdrawals are allowed at any time; penalties on earnings before age 59½ or five-year rule	Penalties before age 59½, unless hardship rule applies
Early withdrawal penalty	10% penalty fees on earnings plus taxes	10% penalty fee plus
Portability	Fully portable	Not as portable (tied to employer)

Benefits of a Roth IRA vs. 401(k): Choosing the right retirement account for you

Roth IRAs and 401(k)s both have various retirement benefits to offer. In order to choose the better option for you, you have to consider your unique situation. You may even want to consider talking to a retirement financial advisor to help you determine which account would best suit your needs.

If you earn too much to contribute to a Roth IRA and your employer offers a Roth 401(k), that may be an option for you if you want to benefit from the flexibility of a Roth account. There are other aspects, such as employer matches, investment options, and withdrawal rules and fees, you may want to keep in mind when considering what account you can benefit from.

On the other hand, if you want both and your employer offers 401(k) plans, you can have a Roth IRA and Roth 401(k) or traditional 401(k) as well, as you are allowed to have multiple retirement accounts. If you choose to do this, you may want to account for flexible distribution rules when allocating your funds to both accounts.

Everyone has a unique financial situation, which is why it is important to weigh the pros and cons of each account when deciding where to invest your retirement funds. Exploring the benefits of a Roth IRA vs. 401(k) can help you make a well-informed decision

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