Deciding between the available retirement investment plans can be a difficult choice for individuals, especially the Roth 401(k) and the Roth IRA. These savings vehicles are often confused and though they do have many similarities, there are important distinctions when analyzing the benefits of these two Roth options.
Ultimately, making the selection between the pair depends on the unique financial profile of the decision maker. Knowing the differences between the opportunities can help you make an informed choice and potentially increase distributions when money comes out of the account.
To learn more about the pros and cons of the Roth 401(k) and Roth IRA, click here to view our white paper, which provides an in-depth summary of both plans. Following are some highlights of what the white paper covers:
Similarities and differences between the Roth 401(k) and Roth IRA
Both accounts are similar in that contributions are made after paying taxes. But they can differ greatly in how much can be contributed by an individual in each type of account and what the minimum required distribution is for each.
In our comparison of the two Roth accounts, the biggest disparity relates to the Roth IRA being an account type while a Roth 401(k) is a simple tax treatment of contributions within an employee’s retirement plan. It’s critical to understand them both to know which is the better option for your needs.
Where the “magic” is — distributions
Anyone considering a Roth account should know that although the tax treatment going in differs, the real magic occurs when money comes out of the account. If the funds meet the IRS’s two requirements, the entire distribution for each type of Roth is completely tax-free.
Planning idea — with a possibly limited window
The Roth IRA has limitations on who can contribute, which are tied to earnings and the filing status of the taxpayer. However, there is a legal way to get around these limits.
How to choose between the Roth 401(k) and Roth IRA plans
The white paper’s overview and comparison provides a complete understanding of the availability and rules surrounding the Roth 401(k) and Roth IRA. Learn about the advantages and disadvantages of each and gather ideas for future financial consideration. The knowledge you will gain will help you make an informed decision for your retirement planning.
Ready to learn the differences between the Roth 401(k) and Roth IRA?
Chris Shankle, CPA, CGMA is senior vice president, and managing director in Shreveport at Argent Financial Group, the parent company of Heritage. Argent is a leading, independent, fiduciary wealth management with offices across 12 Southern states.
Originally posted on November 4, 2021, the white paper has been updated to reflect 2022 numbers.