During retirement planning, Americans frequently face an important choice. First, they have to decide between a Roth IRA and a Roth 401(k). Both types of accounts come with distinct advantages, however, they are very different in terms of contributions, withdrawal methods, and general flexibility. Financial advisors agree that knowing the distinctions is crucial in making the most of retirement savings.
The Roth 401(k) is special, though, because it has no income limits on contributions. This wrinkle in the plan, which disproportionately benefits those who need it the least, enables the wealthiest earners to benefit the most from the plan. On the plus side, the Roth 401(k) has a bigger deferral limit. Currently, as of 2025, workers can contribute a maximum of $23,500 per year. For participants age 50 and up, an additional catch-up contribution of $7,500 is allowed, making the plan even more attractive.
The Roth 401(k) has its restrictions. This means you can’t withdraw the contributions they’ve made before retirement without incurring penalties. In contrast to the Roth IRA, which allows contributions to be withdrawn at any time without penalty, the 401(k) has much more stringent rules. The plan often has less available investment options and higher expense ratios, which may discourage future investors.
Participants in a Roth 401(k) can still reap the benefits of employer matching contributions. A conservative estimate indicates 49% of employers match employee deferrals, increasing available retirement savings dollars. Borrowers have few alternatives under this plan and face stringent repayment rules that must be followed.
The Roth IRA has annual income limits that are indexed each year for inflation. In 2025, this means you could put in $7,000 to your Roth IRA. If you’re age 50 or over you’ll be able to make an additional $1,000 catch-up contribution! Perhaps one of the most attractive features of the Roth IRA is its flexibility or lack thereof. Individuals can withdraw their contributions at any time without incurring penalties.
If Roth IRA earnings are withdrawn before age 59½, they are subject to a 10% penalty unless an exception is invoked. This is unlike the Roth 401(k), where early withdrawals are more difficult because of tougher rules.
As retirement approaches, workers between the ages of 60 and 63 are able to make more of their savings in the Roth 401(k). By 2025, depending on catch-up allowances on both maximum deferrals and contributions, they can fund in excess of $34,750. This age group has a special window of opportunity to strengthen their retirement nest eggs immensely.
Jordan Whitledge, a financial advisor and military veteran, emphasizes the need to look at both sides. “The mistake is thinking it’s one or the other,” he said. He urges people to proactively assess their financial situation and achieve their retirement goals before cashing out.
The benefits of each plan finally come down to personal situations. The Roth IRA offers greater flexibility and easier access to contributions. With greater contribution limits and potential employer matching benefits, the Roth 401(k) makes it a compelling option.
Whitledge goes on to tell a wonderful story that illustrates the priceless benefits of good strategic planning. “That’s why you’re able to compound a lot more, a lot quicker,” he noted regarding the advantages of maximizing contributions in these accounts.