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Roth 401K, Roth IRA, 401K Retirement Plans: Which is Best?

By Lydia | October 22, 2009

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The Roth 401 (k) plan is a new form of retirement account combining the Roth IRA (k) plan and the regular 401 (k) plan. It has bits of both plans which allows the employee to have more flexibility when planning out his retirement as long as his employer agrees with the the switch.

There is no limit to how much income an individual or a couple receives in the Roth 401 (k) plan, but tax is taken off after received income, rather than the 401 (k) plan. However when the employee turns 59 1/2 he is not subject to taxation on his withdraws from the Roth 401 (k) plan. Taxing on income is the main difference between all three plans; whether one wants to be taxed after income through the Roth 401 (k) plan or when he withdraws from the plan after he is 59 1/2 years old  in hopes of a better tax rate through the 401 (k) plan.

Below are listed the key differences and similarities between the three plans:

Roth 401 (k) plan

Roth IRA

Traditional 401 (k) plan

Employee contribution paid with after tax dollars Same as Roth 401 (k) plan Employee contribution paid with before tax dollars
Invested dollars grow without any tax deduction Same as Roth 401 (k) plan Invested dollars are not subject to State or Federal tax deduction until withdrawn
No limitation on income to participate in plan Income limits: married couples, $160,000, singles, $110,000 adjusted gross income. Same as Roth 401(k) plan
Contribution limited to $15,000 in 2006 ($20,000 for employees 50 or over) Contribution limited to $4,000 in 2006 ($5,000 for employees 50 or over) Same as Roth 401 (k) plan
Withdrawals of contributions and investment growth are not taxed provided recipient is at least age 59½ and the account is held for at least five years Same as Roth 401 (k) plan Withdrawals of contributions and investment growth are subject to Federal and most State income taxes
Distributions must begin no later than age 70½ No requirement to start taking distributions Same as Roth 401 (k) plan
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