Roth 401(k) vs. Roth IRA: The basics

When it comes to saving for retirement, one of the first choices you’ll be asked to make for your savings is whether you’d like a Roth account or a traditional one. 

A Roth retirement savings account is one in which contributions are made after taxes are taken out. The earnings in Roth accounts grow tax-free, and qualified withdrawals in retirement are also tax-free. Conversely, contributions to a traditional retirement savings account are taken pre-tax and grow tax-deferred until you retire, at which point your withdrawals will be taxed at regular income tax rates. 

In this article, we’re going to take a closer look at Roth retirement savings accounts. Much like traditional retirement savings accounts, Roth accounts are offered as an option for an employer-sponsored 401(k) or as an individual retirement account (IRA). Both have their advantages, and it’s important to understand them when deciding which is best for you. Let’s take a look. 

Roth 401(k)

In the simplest terms, a 401(k) is an employer-sponsored retirement plan that often comes with added benefits, such as matched contributions or waived fees. The majority of employers who offer a sponsored 401(k) plan offer employees a Roth option.

Contributing to a Roth 401(k) is an automatic contribution based on payroll deduction, meaning your contributions are automatically deducted from your paycheck and put directly into your retirement account. If your plan offers a match, that free money will apply to those Roth dollars. Like any plan, there is typically some sort of administrative fee associated with your company’s retirement plan; the good news is much of the time this fee is either reduced or paid for by your employer. You will also have access to a selection of inexpensive mutual fund options.

Finally, there are no income limitations for a Roth 401(k), and your annual contribution limit as of 2026 is $24,500. If you are age 50 to 59 OR 64 and older, a $8,000 catch-up contribution is allowed.  If you are ages 60-63, a catch-up contribution of $11,250 is allowed.

Roth IRA

A Roth IRA is an individual retirement account that is set up outside of your employer-sponsored 401(k). This type of investment vehicle can also be advantageous. Just like a Roth 401(k), your contributions will be deposited as after-tax dollars, meaning that when you decide to start taking distributions, those will be tax-free distributions.  

The fee for your Roth IRA can vary depending on who administers it. While some Roth IRAs are inexpensive, there are others that may charge a load or sales commission to be paid to the administrator or the advisor. Unlike your Roth 401(k), you are not limited to a select offering of mutual funds; instead, you have access to numerous investment options, some of which will be low cost with a great historical performance.

Finally, Roth IRAs come with income limitations — to be able to contribute the full amount, you must earn $153,000 or less per year as a single person or $242,000 for a married couple. Contribution limits are also lower; as of 2026, you can contribute up to $7,500, and if you’re age 50 or older, an additional $1,100 catch-up contribution is permitted.

Choose your best fit

The good news is you don’t have to choose between a Roth 401(k) or a Roth IRA — if you prefer, you can contribute to both account types as long as you meet eligibility requirements. Both options have their advantages, and the path you choose — whether it’s a Roth 401(k), Roth IRA, or both — is up to you and your unique circumstances.