How is a "Roth" retirement account different from a regular 401k account?

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  1. GA Anderson profile image91
    GA Andersonposted 7 years ago

    How is a "Roth" retirement account different from a regular 401k account?

  2. LearnAboutIt profile image67
    LearnAboutItposted 7 years ago

    The most important difference between a Roth IRA and a 401k is that Roth IRA contributions are made with POST-tax money, and 401k contributions are typically made with PRE-tax money (taken directly from your paycheck, before taxes are withheld). 

    Another important difference is the contribution limit.  A Roth IRA, in 2011, allows you to contribute $5,000 if you are under age 50, $6,000 if you are over 50, with some income limitations (high income earners are not eligible).  A 401k  allows you to contribute up to $16,500 in 2011.

    Distributions are also taxed differently.  Assuming you are of retirement age (age 59 1/2), Roth IRA distributions are tax-free (since you paid taxes BEFORE you contributed).  A 401k is typically "rolled" into an IRA, at which point distributions are taxed as ordinary income.

    While these are some general differences, these are not the only differences.  Check out my hub Roth IRA 101 for some additional info regarding Roth IRA basics:

  3. lostdogrwd profile image62
    lostdogrwdposted 7 years ago

    if you going to invest ,its best to have a Roth IRA for the money that a Roth make is tax free if in for the time and you can get around the limit by self investing for the IRA.

  4. bankscottage profile image96
    bankscottageposted 7 years ago

    There are both Roth IRAs and regular IRAs as well as Roth 401(k)s and regular 401(k)s.

    The limits and rules are essentially the same.  The biggest difference is Roth accounts, the money goes in after-tax, grows tax-free, and you pay no taxes when you withdrawl.  Regular IRAs and 401(k)s, the money goes in pre-tax (reduces your taxable income), grows tax-free, and you pay taxes on the money when you withdrawal it.

    Not as many employers offer a Roth 401(k) as offer regular 401(k)s.  If your employer offers a Roth 401(k), you put money in post-tax (tax free withdrawals), but your employer's match will be put in with pre-tax dollars (taxable withdrawals).  In this case, the Roth 401(k) kind of becomes a hybrid account.


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