Roth IRAs vs. Roth 401(k)s: Which Is Right for You?

Roth accounts are a powerful tool for retirement savings. They offer tax-free withdrawals in retirement, making them especially appealing for people who anticipate being in a higher tax bracket later in life. But how do you choose between a Roth IRA and a Roth 401(k)? Let’s break down the key differences:

Contribution Limits

• Roth IRA: The annual contribution limit for 2023 is $6,500 ($7,500 for those aged 50 and older).
• Roth 401(k): Much higher limits apply. For 2023, you can contribute up to $22,500 ($30,000 if age 50+).

Income Eligibility

• Roth IRA: Income limits restrict who can contribute to a Roth IRA. In 2023, the ability to make a total contribution phase out for single filers with incomes between $138,000 and $153,000 (and for married couples filing jointly between $218,000 and $228,000).
• Roth 401(k): No income limits exist for Roth 401(k) contributions. Anyone can participate if their employer offers a Roth option within their plan.

Employer Match

• Roth IRA: No employer match is available. Contributions are solely from your funds.
• Roth 401(k): Employers can offer matching contributions to Roth 401(k) accounts, significantly boosting your savings.

Investment Choices

• Roth IRA: You have almost unlimited investment options. Choose stocks, bonds, ETFs, mutual funds…