Overview
A 401(k) and a Roth IRA are both powerful retirement savings vehicles, but they differ in tax treatment, contribution limits, and employer involvement. Many people use both to diversify their tax exposure in retirement.
The 401K Calculator models employer-sponsored retirement savings including employer match. The Roth IRA Calculator projects after-tax growth and tax-free retirement withdrawals.
Key Differences
**Contribution limits:** 401(k)s allow much higher contributions ($23,000 in 2024) compared to Roth IRAs ($7,000 in 2024).
**Employer match:** 401(k)s often include an employer match -- essentially free money. Roth IRAs are individual accounts with no employer involvement.
**Tax treatment:** Traditional 401(k) contributions are pre-tax; withdrawals are taxed. Roth IRA contributions are after-tax; qualified withdrawals are tax-free.
**Investment options:** 401(k)s offer a limited menu chosen by your employer. Roth IRAs let you invest in almost anything -- stocks, bonds, ETFs, mutual funds.
**Required distributions:** Traditional 401(k)s require minimum distributions at age 73. Roth IRAs have no RMDs during your lifetime.
When to Use the 401(k) Calculator
- Your employer offers a matching contribution and you want to see its impact - You want to maximize your pre-tax retirement savings beyond IRA limits - You are in a high tax bracket and want to reduce current taxable income - You want to model different contribution percentages against your salary - You are comparing your 401(k) plan options from different employers
When to Use the Roth IRA Calculator
- You have already captured your full employer match and want additional tax-advantaged savings - You prefer tax-free withdrawals in retirement for planning certainty - You are young and expect your tax bracket to be higher in retirement - You want more investment flexibility than your 401(k) plan offers - You want to avoid required minimum distributions
Frequently Asked Questions
Q: Should I contribute to a 401(k) or Roth IRA first? A: Most advisors recommend contributing enough to your 401(k) to capture the full employer match first, then funding a Roth IRA, then going back to max out the 401(k).
Q: Can I have both a 401(k) and a Roth IRA? A: Yes. The contribution limits are separate, so you can max out both in the same year if you have the income to support it.
Q: What if my employer offers a Roth 401(k)? A: A Roth 401(k) combines the higher contribution limits of a 401(k) with the after-tax treatment of a Roth. Employer match contributions still go into a traditional (pre-tax) account.
Q: Which grows faster? A: The 401(k) grows faster if your employer matches contributions. Without a match, growth depends on investment choices and tax rates.
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