Roth IRAs vs. Designated Roth 401(k) Accounts

A recent call with a financial advisor in New York is representative of a common question on Roth IRA versus Designated Roth 401(k).

Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans, and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security, and Medicare. This is where we highlight the most relevant topics affecting your business.

“What are the differences between Roth IRAs and designated Roth 401(k) accounts?”

Highlights of the Discussion

While there are commonalities, the following chart summarizes several key differences between Roth IRAs and designated Roth 401(k) accounts.

[1] https://www.irs.gov/pub/irs-drop/n-10-84.pdf

[2] https://www.irs.gov/pub/irs-drop/n-13-74.pdf

Conclusion

While both Roth IRAs and designated Roth 401(k) plan contributions offer the potential for tax-free withdrawals, there are several key differences between the two arrangements. Whether one, the other, or both may be right for a particular investor depends on the individual’s circumstances and goals and should be determined based on a thorough conversation between the investor and his or her tax advisor.