Roth 401(k) vs. Roth IRA: What’s the Difference—and Which One’s Right for You?
🕒3-minute read
When it comes to planning for retirement, one thing’s clear: the earlier you start, the better. And while there are several ways to build your nest egg, Roth retirement accounts—like Roth 401(k)s and Roth IRAs—offer powerful, tax-advantaged ways to grow your savings.
But what’s the difference between the two? And how do you know which one is the right fit for your goals? At Rave Financial, we’re here to help break it down.
What Is a Roth 401(k)?
A Roth 401(k) is a retirement account offered through your employer. When you contribute to a Roth 401(k), the money comes straight out of your paycheck after taxes. That means you’ve already paid taxes on it—so when you retire, your withdrawals are completely tax-free (as long as they’re qualified).
A few key benefits:
- Automatic contributions make saving simple.
- Employer match may be available (which is essentially free money!).
- Higher contribution limits than IRAs.
- No Required Minimum Distributions (RMDs) starting in 2024, thanks to the SECURE 2.0 Act.
And for those aged 50 and up, catch-up contributions let you save even more—especially between ages 60–63, where larger catch-ups are coming in 2025.
What Is a Roth IRA?
Unlike a Roth 401(k), a Roth IRA is opened individually—not through an employer. You can set one up at a credit union, bank, or financial institution and choose from a wide range of investments.
Like a Roth 401(k), you contribute after-tax dollars. The money grows tax-free, and you can withdraw it tax-free in retirement.
What makes a Roth IRA different:
- Income limits apply—higher earners may be restricted from contributing.
- Lower annual contribution limits than 401(k)s.
- No employer match—you’re funding it on your own.
- More investment flexibility—you choose where and how to invest.
- Special early withdrawal exceptions (like for first-time home purchases or education expenses).
And just like Roth 401(k)s, Roth IRAs are not subject to RMDs, giving your money more time to grow.
How Are They Similar?
Both Roth account types offer:
- After-tax contributions
- Tax-free growth
- Tax-free withdrawals in retirement
- Catch-up contributions for savers 50+
- No RMDs (as of 2024)
They’re especially great options if you expect to be in a higher tax bracket when you retire—since you’re paying taxes now, rather than later.
Which One Should You Choose?
The good news? You don’t have to pick just one. If you’re eligible, contributing to both can offer even more flexibility and long-term growth. But if you’re just getting started, consider your income, whether your employer offers a match, and how much flexibility you want in managing your investments.
Let’s Build Your Retirement Strategy—Together
At Rave Financial, we’re committed to helping you reach your long-term goals with confidence. Whether you’re ready to open a Roth IRA, or discuss your options, our team is here to guide you every step of the way.
Book an appointment with our Financial Advisor to get started.
Retirement plans are subject to IRS rules and may change over time. Please consult your tax advisor or financial planner before making investment decisions.