Is a Roth 401k different from Roth IRA?

Roth IRA Roth 01kI get this question quite often, so I thought it made sense to address it here in our blog.

There are 2 big reasons for writing about the similarities and differences of the Roth 401k and Roth IRA.

  1. For businesses: When a business asks me to assess their company 401k, I am surprised at how often the retirement plan doesn’t offer the Roth 401k option (yeah I know, my heart rate is racing right now at the thought!). I think that does a disservice to the plan participants so I make a point during my 401k Plan Review to explain to the plan sponsor why their 401k should offer the Roth 401k. What a wonderful tool to help participants plan for retirement.
  2. For investors: The other reason I’m writing this is because individual investors will contact me and want to know what benefits, if any, the Roth 401k has over a Roth IRA. Thinking they are one-in-the-same is a big mistake.

Similarities of Roth 401k and Roth IRA

  • Both accounts offer tax-free growth on your investments and then tax-free retirement income. That’s very powerful and I could stop the article right there. But keep reading…

What are the differences between Roth 401k and Roth IRA?

  • Size does matter – You can contribute $19,500 (plus $6,500 if you’re lucky enough to be 50 or older) to the Roth 401k in 2021. That’s much larger than $6,000 (extra $1,000 for catch up) for Roth IRA.
  • No income exclusion – My high-income clients won’t qualify for the Roth IRA because they earn too much money. I think that is a shame, but it is what it is. With a Roth 401k, there is no income exclusion… everyone can utilize it!
  • Withdrawals – I never think it’s a good idea to withdraw your funds before retirement. The main reason is that the majority of people don’t save enough for retirement as it is, so why withdraw early? But if you do plan on withdrawing before retirement, the Roth IRA is easier to access as long as you’ve had the contributions in there 5 years. It’s not that way for Roth 401k (you’ll have to access that money via a loan).

Here are 2 things to consider to figure out if Roth 401k or Roth IRA is better for you:

  1. Get the match – If your employer offers a company match in your 401(k), then use your 401k to take advantage of this match. I strong urge you to always get that “free money”.
  1. Check investment fees – It’s always smart to monitor fees when you’re investing. So, keep an eye on the fees in your 401(k) and what your investment company is charging you for the Roth IRA. I find many 401(k) plans have fees that are way too high.

Keep in mind we offer a complimentary 401(k) Plan Assessment so your company can:

  • get their arms around what the fees are in their 401k plan and
  • we can offer strategies to help lower those fees in the future. Just lowering the fees can potentially help employees have more money at retirement.

Here’s what to do next about Roth 401(k) vs. Roth IRA:

If your 401(k) investments are pricey or if you’re not sure what the fees are (that can be complicated to figure out), book a consultation today (or send me an email or call) and we can help your company find ways to reduce your 401(k) fees. If you’re not in charge of the 401k then connect us with your HR or benefits person. We will provide them a free 401k Plan analysis.

Ready to discuss your retirement plan with a 401(k) Advisor?


A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.