Roth 401(k) vs. Roth IRA: Which Is Better for You?

Both accounts offer tax-free growth on your investments and tax-free retirement income. But there are differences, including the rules for pulling money out before retirement.
Andrea Coombes
By Andrea Coombes 
Updated
Edited by Chris Hutchison

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.


The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

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.

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.

Advertisement
NerdWallet rating 

4.9

/5
NerdWallet rating 

5.0

/5
NerdWallet rating 

4.1

/5

Fees 

$0

per online equity trade

Fees 

$0

per trade

Fees 

$0

per trade

Account minimum 

$0

Account minimum 

$0

Account minimum 

$0

Promotion 

None

no promotion available at this time

Promotion 

None

no promotion available at this time

Promotion 

Get up to $700

when you open and fund a J.P. Morgan Self-Directed Investing account with qualifying new money.

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 match

If 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 fees

An 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, director of retirement 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:

  • If your 401(k) investments are pricey, consider contributing just enough to get the company match, and then proceed directly to a brokerage to open a Roth IRA.

  • If your 401(k) offers low-cost mutual funds, then you’re ready to check out our chart to decide whether the Roth IRA or Roth 401(k) makes the most sense for you. Or, if you’re ready to maximize your retirement savings, go ahead and contribute to both.

In 2023, minimum distributions are required for Roth 401(k)s but not Roth IRAs. In 2024, neither Roth 401(k)s nor Roth IRAs will have required minimum distributions.

AD

Get a custom financial plan and unlimited access to a Certified Financial Planner™

Custom financial plan tailored to your situation and goals
Access to a Certified Financial Planner™ via calls or messaging
Unbiased, expert financial advice for a low price.
CHAT WITH AN ADVISOR

NerdWallet Advisory LLC

Roth 401(k) vs. Roth IRA

If you ...

Then a ...

Here’s why

In 2023, have $153,000 or more (single filer), or $228,000 or more (married filing jointly), in modified adjusted gross income.

In 2024, if your MAGI is $161,000 or more (single), or $240,000 (married filing jointly).

Roth 401(k) is best for you.

You can’t contribute to a Roth IRA due to income limits.

Want easy access to your money before retirement.

Roth IRA is best for you.

You should avoid tapping your savings if possible, but you can withdraw Roth IRA contributions anytime. With a Roth 401(k), tax- and penalty-free withdrawals before age 59½ generally are limited to loans and specific exceptions.

Have more than $6,500 to contribute in 2023, or more than $7,000 in 2024.

Roth 401(k) is best for you (or you can contribute to both types of accounts).

In 2023, the annual contribution limit for Roth 401(k)s is $22,500 ($30,000 for those age 50+). In 2024, the limit is $23,000 ($30,500 for those age 50+). The max contribution for a Roth IRA is $6,500 in 2023 and $7,000 in 2024.

Want to get started quickly and contribute via paycheck.

Roth 401(k) is best for you.

Both accounts are easy to set up, but your employer does most of the setting up with a Roth 401(k), whereas you’ll need to do the work yourself with a Roth IRA (some employers do offer paycheck deductions for IRAs).

Want access to a large variety of investments.

Roth IRA is best for you.

With a Roth IRA, you can invest in anything offered by the brokerage where you open your account. With a 401(k), you’re limited to the plan’s investment menu.

A smart view of your financial health
Track your retirement savings balances in one place by linking your accounts.
AD
Robinhood
NerdWallet rating 

on Robinhood's website

Get more smart money moves – straight to your inbox
Sign up and we’ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.
Nerdwallet advisors logo

Get a custom financial plan and unlimited access to a Certified Financial Planner™. Unbiased, expert financial advice for a low price.

    NerdWallet Advisory LLC

    AD