What is the difference between a Roth IRA and a Traditional 401(k)?
Here is the breakdown:
Here is the breakdown:
Contribution limits:
Contributions to a Roth IRA are subject to income limits and have a lower annual contribution limit ($6,000 for 2021, $7,000 if you're over 50) compared to a 401(k) ($19,500 for 2021, $26,000 if you're over 50).
Contributions to a Roth IRA are subject to income limits and have a lower annual contribution limit ($6,000 for 2021, $7,000 if you're over 50) compared to a 401(k) ($19,500 for 2021, $26,000 if you're over 50).
Tax treatment:
Contributions to a traditional 401(k) are made on a pre-tax basis, meaning the money you contribute is not taxed as you invest it.
Contributions to a Roth IRA are made with after-tax dollars, meaning you've been taxed on the money before you invest it.
Contributions to a traditional 401(k) are made on a pre-tax basis, meaning the money you contribute is not taxed as you invest it.
Contributions to a Roth IRA are made with after-tax dollars, meaning you've been taxed on the money before you invest it.
Tax treatment of withdrawals:
Withdrawals from a traditional 401(k) are taxed as ordinary income, while withdrawals from a Roth IRA are tax-free as long as you meet certain conditions, such as being over 59 1/2 and having the account for at least five years.
Withdrawals from a traditional 401(k) are taxed as ordinary income, while withdrawals from a Roth IRA are tax-free as long as you meet certain conditions, such as being over 59 1/2 and having the account for at least five years.
Employer match:
Some employers may match your 401(k) contributions, this is not the case for Roth IRA.
Some employers may match your 401(k) contributions, this is not the case for Roth IRA.
Required Minimum Distributions:
Traditional 401(k) and traditional IRA account holders are required to start taking required minimum distributions (RMDs) at age 72, but Roth IRA account holders are not required to take RMDs at any age.
Traditional 401(k) and traditional IRA account holders are required to start taking required minimum distributions (RMDs) at age 72, but Roth IRA account holders are not required to take RMDs at any age.
Investment choices:
our 401(k) plan may have more investment options than a Roth IRA.
our 401(k) plan may have more investment options than a Roth IRA.
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