8 Reasons a Roth IRA May Be Better Than Your Company 401(k)

The benefit of saving for retirement in a company 401(k) is getting to capitalize on an employer match. Many companies that sponsor 401(k) plans also match workers' contributions to varying degrees. But even if you have access to a 401(k), it could still pay to house your long-term savings in a Roth IRA. Here's why.

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With a 401(k), you can't buy individual stocks. Rather, you're limited to a selection of funds, and that selection may not be all that robust. With a Roth IRA, you can invest in funds or individual stocks, and you get a lot more choices to work with.

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When you invest your 401(k) dollars, that money gets to grow on a tax-deferred basis, but you'll eventually pay taxes on gains in your account. With a Roth IRA, those gains are yours to enjoy tax-free.

Roth IRAs don't give you an immediate tax break on the money you put in, but once you start taking withdrawals in retirement, that money is yours to collect without paying the IRS a dime. That gives you more financial freedom later in life.

Roth IRAs are the only tax-advantaged savings plan to not impose required minimum distributions, or RMDs. These force you to remove a chunk of your savings each year, at which point you lose the option to keep that money invested in a tax-advantaged fashion, so the fact that Roth IRAs don't have them is a definite plus.

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Because Roth IRAs don't come with RMDs, they allow you to leave a substantial amount of wealth to your heirs. If that's something you want to do, then it pays to favor a Roth IRA over any other retirement plan.

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Because you don't get a tax break on your Roth IRA contributions, you get the option to withdraw your money at any time without penalty. That means if you run into an emergency situation, you can tap your Roth IRA to cover it. That said, this allowance applies to the principal amount you contribute to your account. If you access the gains portion early, penalties could apply.

When you save in a 401(k), you'll often be subject to costly administrative fees that eat away at your returns (and that's not even counting the investment fees you might end up paying). Roth IRAs tend to charge lower fees that won't erode your savings.

ALSO READ: 4 Benefits of Opening a Roth IRA for Your Kids

Social Security income can be taxable once your total earnings exceed a certain threshold in retirement. Roth IRA withdrawals, however, don’t count toward that threshold, so if you keep your money in a Roth IRA, it may help you avoid taxes on your benefits.

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There are plenty of good reasons to save in a company 401(k). In addition to snagging matching dollars, you can also benefit from a higher annual contribution limit. But even so, Roth IRAs come with a host of perks, and you may find that opening one is the best move for you. It pays to explore your options so you can save for retirement as efficiently as possible.

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