Roth 401(k) vs. Roth IRA: Which Is Best for You?

Both the Roth 401(k) and the Roth IRA can help you reach your retirement goals. Each has its advantages and disadvantages.

Key Points

Roth 401(k)s offer higher limits and often employer matches; no income cap for contributions.
Roth IRAs allow broader investment options and no withdrawal mandates; high earners barred.
Both account types feature tax-free withdrawals, with individual and employer plan differences.

Roth 401(k)s and Roth IRAs are retirement savings accounts that allow you to contribute with after-tax dollars and take tax-free withdrawals in retirement. They are an alternative to traditional 401(k)s and traditional IRAs, both of which allow pre-tax contributions but require you to pay tax on withdrawals.

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Infographic comparing a Roth 401(k) to a Roth IRA — Image source: The Motley Fool.

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While both Roth accounts make it possible to defer taxes until retirement, there are some important differences between a Roth 401(k) and a Roth IRA:

Eligibility: Because of income limits, higher earners cannot contribute to Roth IRAs.
Individual/employer accounts: Roth 401(k)s are administered by employers, while Roth IRAs are opened by individuals.
Contribution limits: Roth 401(k)s have higher contribution limits than Roth IRAs.

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Table by author.
Account Type	Pros	Cons
Roth 401(k)	Roth 401(k)s have higher contribution limits than Roth IRAs. There are no income limits for eligibility. Employers often match a portion of contributions	Not all employers offer Roth 401(k)s. You have a narrow choice of investment options, and some might involve steep fees. You need an employer to open one.
Roth IRA	You can open one even if you don't have access to a workplace retirement plan. You'll have a broad range of investment possibilities, including virtually any stock, bond, or fund. There are no withdrawal requirements, and the account can be passed on to heirs. You can open an account at a brokerage that charges low fees.	Roth IRA contribution limits are lower than Roth 401(k)s. No matching contribution from employers is available. High earners can't contribute to Roth IRAs.

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Roth IRA vs. Roth 401(k): Which Is Best for You?

Both the Roth 401(k) and the Roth IRA can help you reach your retirement goals. Each has its advantages and disadvantages.

Key Points

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