Roth 401(k) vs Roth IRA: Limits, Rules and Which to Use
Short answer. Both take after-tax money and allow tax-free qualified withdrawals. A Roth 401(k) is offered through an employer, has a much higher annual contribution limit and no income cap, and may bring an employer match. A Roth IRA you open yourself; it has a lower limit, an income limit, and a wider choice of investments.
Side by side
| Roth 401(k) | Roth IRA | |
|---|---|---|
| Who offers it | Your employer’s plan | You, at any brokerage or bank |
| Annual contribution limit | Much higher (shared with a traditional 401(k)) | Lower (shared with a traditional IRA) |
| Income limit to contribute | None | Yes, phases out at higher incomes |
| Employer match | Possible (match usually goes into a pre-tax account) | None |
| Investment choices | A menu chosen by the plan | Almost anything your brokerage offers |
| Required minimum distributions | None from 2024 on, under SECURE 2.0 | None for the original owner |
| Contribution withdrawals | Taken pro rata with earnings | Contributions can come out tax- and penalty-free anytime |
Which one fits you?
Lean towards Roth 401(k) if…
- you want to save more than the IRA limit
- your income is too high for a Roth IRA
- your employer offers a match
Lean towards Roth IRA if…
- you want a broad choice of low-cost funds
- you want flexible access to your contributions
- your employer plan has high fees
Frequently asked questions
Can I have both?
Yes. Limits are separate, so you can contribute to a Roth 401(k) and a Roth IRA in the same year if you qualify.
Which should I fund first?
Many planners suggest capturing the full employer match first, then the account with the lowest fees and best investments, then adding the other.
Can I roll a Roth 401(k) into a Roth IRA?
Yes, after leaving the employer, as a rollover. Check current IRS rules and your plan’s terms.
General education, not personal financial advice. Figures are typical US examples and vary by provider and year.