Key Differences Between Roth IRAs and Roth 401(k)s
In this week’s webinar, I discuss: The differences, benefits, and drawbacks of Roth IRAs and Roth 401(k)s!
Roth IRAs and Roth 401(k)s are both retirement savings accounts that offer tax-free growth and withdrawals in retirement, but there are some key differences between the two.
Roth IRA:
A Roth IRA is an individual retirement account that allows you to contribute after-tax dollars, meaning that you pay taxes on the money before you put it into the account. The money in a Roth IRA grows tax-free, and when you withdraw it in retirement, you don’t have to pay taxes on the distributions.
One significant advantage of a Roth IRA is that you can withdraw your contributions at any time without penalty. However, if you withdraw any of the earnings before age 59 ½, you may have to pay taxes and penalties.
Roth 401(k):
A Roth 401(k) is a retirement savings account offered by some employers that allows you to contribute after-tax dollars. Like a Roth IRA, the money in a Roth 401(k) grows tax-free, and withdrawals in retirement are tax-free as well.
One advantage of a Roth 401(k) is that you can contribute more money than you can to a Roth IRA. In 2023, the annual contribution limit for a Roth 401(k) is $19,500, compared to $6,000 for a Roth IRA. Additionally, if you’re age 50 or older, you can make catch-up contributions to a Roth 401(k) of up to $6,500 per year.
However, one downside of a Roth 401(k) is that you can’t withdraw your contributions without penalty until you reach age 59 ½, even if you’ve had the account for five years or more. If you withdraw any of the earnings before age 59 ½, you may have to pay taxes and penalties.
Overall, the decision to invest in a Roth IRA or Roth 401(k) depends on your individual circumstances, such as your income, retirement goals, and employer benefits. Working with a financial professional can help you determine which option is best for you.
Each Tuesday at 10 a.m. (except Tuesdays that follow Market Holidays), I hold a Live Webinar where I discuss recent headlines, IRA and retirement planning issues from the Ed Slott Group, market updates and analyst reports, and a timely Financial Planning strategy or technique.
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I hope you find this webinar informative and helpful.
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The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Attleboro Wealth Management, LLC is a Registered Investment Adviser. This program is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Attleboro Wealth Management, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Attleboro Wealth Management, LLC unless a client service agreement is in place.
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0:00 – Introduction & Upcoming
04:36 – Market update, Slott update, Mailbag
35:49 – The Financial 15: Key Differences Between Roth IRAs & Roth 401(k)s