A growing number of people have access to Roth 401(k)s at work — and that’s good, because Roths can be a great way to save. The question is, which is best for you: a Roth 401(k) or a Roth IRA? After all, when it comes to Roth 401(k) vs. Roth IRA, both types of Roths offer the same valuable benefit: Your investments grow tax-free. As long as you follow the rules, all of your money comes out tax-free in retirement. Show You can’t really go wrong with either type of Roth. (If you're leaning toward a Roth IRA, check out our top picks for the best Roth IRA accounts.) But there are a handful of ways in which the two accounts differ. Depending on your situation, a Roth 401(k) may be better for you than a Roth IRA, or vice versa. We’ve created a chart for you to compare Roth 401(k)s and Roth IRAs. But first, take these two steps: 1. Get the matchIf your employer offers a company match in your 401(k), contribute enough to the 401(k) to qualify for that free money. Because … free money. 2. Check investment feesA hugely important savings strategy is to find low-cost investments. The investments offered in your 401(k) may be amazing — or awful. You’ll need to look at your plan to see if it offers low-cost investments. As a general rule, a mutual fund with an expense ratio of 1% or more is too expensive; ideally you’re paying less than 0.5%. The key question when deciding between a Roth IRA or Roth 401(k) is, “Where can I get the least expensive investments?” says Michael Weddell, a senior consultant at Willis Towers Watson, where he works with companies on their workplace retirement plans.
Here’s what to do on Roth 401(k) vs. Roth IRA:
Roth 401(k) vs. Roth IRA
Should I have both a Roth IRA and 401k?Contributing to both a 401(k) and Roth IRA allows you to maximize your retirement savings and benefit from tax advantages. With a 401(k) account, you'll contribute money you haven't yet paid taxes on. Your employer may also match contributions up to a certain percentage of your annual income.
Should I put more in Roth or 401k?If you expect to be in a lower tax bracket in retirement, a traditional 401(k) may make more sense than a Roth account. But if you're in a low tax bracket now and believe you'll be in a higher tax bracket when you retire, a Roth 401(k) could be a better option.
Can I have a 401k and a Roth at the same time?Yes, you can contribute to a Roth IRA and a 401(k) at the same time.
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