3 key differences between a Roth 401 (k) and a Roth IRA

3 key differences between a Roth 401 (k) and a Roth IRA

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Roth accounts are after-tax accounts that offer unique benefits to retirement savings.

That is, investments grow tax free and withdrawals are not subject to tax during retirement years. But there are key differences between Roth savings in a 401 (k) plan and an individual retirement account.

Here are some of the bigger ones.



Not everyone can save in a Roth IRA. Investors are not eligible if their annual income exceeds a certain level.

In comparison, Roth 401 (k) plans have no income limit. (However, some workers may not have a Roth 401 (k) option.)

In 2021, the maximum amount that a single taxpayer can contribute to a Roth IRA is if his income is less than $ 125,000. Once their income is $ 140,000 or more, they cannot contribute at all.

(Married couples who file a joint tax return can contribute the maximum amount if their income is less than $ 198,000; they cannot contribute more than $ 208,000.)

Regardless of their income, employees can transfer their Roth 401 (k) savings to a Roth IRA when they change jobs or retire.

minimum distribution required

Roth IRAs do not make the required minimum annual distributions to their owners. As a result, savers are not required to withdraw money from the accounts during their lifetime. (However, his successors do.)

Roth 401 (k) accounts require distributions from age 72, just like savers in traditional pre-tax retirement accounts. Unlike withdrawals from pre-tax accounts, Roth distributions are tax-free after 59 years.



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