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If i have a Roth 401k not a Roth ira..Whats the difference

can someone tell me the difference in a roth ira and a roth 401k
2 Replies

If i have a Roth 401k not a Roth ira..Whats the difference

If i have a Roth 401k not a Roth ira..Whats the difference

Any workplace plan will be included under the IRS as a "qualified plan"--i.e. qualified workplace retirement plan.  An IRA is a private or "individual" retirement "arrangement" that you make on your own with a bank or broker.  Even though both a Roth 401k and a Roth IRA have the same basic idea -- contribute after tax and don't pay tax when you retire, there are some important differences.

 

Some of the basic differences are,

Qualified plan IRA
Only contribute via payroll deductions

Contribute your own money

Higher contribution limits Lower contribution limit, contributions may be disallowed based on your income
Can't withdraw until you separate from service with the employer (unless you have a hardship and your employer allows hardship withdrawals) Can withdraw at any time (but may be subject to tax)
Some employers may allow you to borrow from your 401k balance, with repayment via mandatory payroll deduction You can't borrow from an IRA
10% penalty for early withdrawal before age 59-1/2, unless you separate from service with the sponsoring employer at age 55 or above 10% penalty for early withdrawal before age 59-1/2
Certain exceptions to the 10% penalty that are allowed for IRAs are not allowed for qualified plans, see https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri... Some exceptions to the 10% penalty for early withdrawal under age 59-1/2 are allowed

 

 

 

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