Everything about Roth ira vs 401k


roth ira vs 401k

A Roth IRA is an individual retirement account that is funded with after-tax money, while a 401k is an employer-sponsored account that is funded with pre-tax money. This means that when you withdraw money from a Roth IRA in retirement, you won’t have to pay any taxes on it, whereas you will have to pay taxes on the money you withdraw from a 401k. Another difference between Roth IRAs and 401ks is that you can’t contribute as much money to a Roth IRA as you can to a 401k.

Advantage:

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One advantage of a Roth IRA over a 401k is that you can withdraw your principal contributions to a Roth IRA at any time, without incurring taxes or penalties. In contrast, the IRS imposes a 10% penalty on 401k withdrawals before you reach age 59 1/2.

Roth IRAs also have higher contribution limits than 401k plans do. The maximum amount that you can contribute to a Roth IRA in 2013 is $5,500. 401k contribution limits depend on your age. For example, if you’re under 50 years of age, the maximum amount that you can contribute to a 401k in 2013 is $17,500. Roth IRA contribution limits are the same regardless of whether you’re employed or self-employed. However, you can contribute to a 401k no matter whether you’re employed or self-employed.

Another advantage of Roth IRAs is that under certain conditions, people with low to moderate incomes can contribute up to $6,500 per year (or $5,500 if they file their taxes as married and filing separately). However, to contribute the maximum amount to a 401k, a worker must make at least $23,000 annually.

Disadvantage:

One disadvantage of Roth IRAs is that you can’t contribute as much money to them as you can to 401ks. Another disadvantage is that you can’t withdraw your principal contributions to a Roth IRA at any time without incurring taxes or penalties. In contrast, the IRS imposes a 10% penalty on 401k withdrawals before you reach age 59 1/2.

Conclusion:

In conclusion, if you’re self-employed and want to invest in retirement savings but you have low income, then a Roth IRA maybe your best option because of its higher contribution limits. And unlike a 401k, you can withdraw your contributions from a Roth IRA without incurring taxes or penalties, which means that you won’t need to leave your Roth IRA untouched until retirement.

You also might be interested in… What are the advantages of a traditional IRA? What are some of the differences between Roth IRAs and 401ks? Which is better for me, a Roth IRA or a traditional IRA with deductible contributions? Which is better for me, an HSA or an FSA? What is a backdoor, Roth? Is there anything wrong with backdoor Roth? How do I open a green dot IRA account? What are some advantages of using Vanguard over eTrade for an IRA?

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