Is it better to keep money in a 401(k) or Roth IRA?

When deciding whether to keep money in a traditional 401(k) or a Roth IRA, consider the pros and cons of both. For instance, 401(k) money goes in pre-tax, and your contributions to the account reduce your taxable income. However, you have to pay taxes when you withdraw funds in retirement. With a Roth IRA, you contribute post-tax dollars and don't get a tax deduction for contributing, but you don't have to pay taxes on qualified distributions in retirement.

Is Roth 401(k) better than a traditional IRA?

A Roth 401(k) isn't better or worse than a traditional IRA. The two types of accounts are simply different. A Roth 401(k) might be better for you than a traditional IRA if you want to invest easily through payroll deductions and enjoy tax-free withdrawals in retirement. A traditional IRA might be better if you want more control over your investment options and take a tax deduction on your contributions.

Why is the Roth IRA better?

A Roth IRA is good if you like to have control over the types of assets you can own in your retirement portfolio. It's also good if you would rather invest with post-tax dollars and not pay taxes when you take qualified distributions in retirement.

Is it better to do Roth or pre-tax 401(k)?

It's better to save with a Roth 401(k) than a pre-tax 401(k), often called a "traditional" 401(k), if you prefer not to pay taxes on your retirement savings when you withdraw them in retirement. A pre-tax 401(k) is better for those who want to reduce their taxable income in the year they contribute.

Roth IRA vs. 401(K): How Do They Compare?

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Roth individual retirement accounts (IRAs) and traditional 401(k)s are two types of retirement savings accounts that can help you grow your nest egg tax-free.

That said, the two accounts have some key differences regarding tax advantages, contribution limits and available investment options. Find out more about how these accounts stack up to see which is right for you.

Roth IRA vs. 401(k): A quick comparison

	Roth IRA	401(k)
Where to open	Brokerage, bank or other financial institution	Through an employer
Investment options	All assets are permitted inside an IRA except collectibles and life insurance The IRA custodian determines available investment options	Limited to investment options the employer has chosen, which are typically mutual funds and some exchange-traded funds (ETFs)
Income limits to contribute	Individuals filing as single and head of household. Contribute up to $7,500 if your 2026 modified adjusted gross income (MAGI) is under $153,000; individuals with a MAGI above $153,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $168,000⁽¹⁾ Married couples filing jointly. Contribute up to $7,500 each if your MAGI is under $242,000 per year; married couples with a MAGI above $242,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $252,000⁽¹⁾	None
Contribution limits	$7,500 for those under age 50 $8,600 for those age 50 and over⁽¹⁾	$24,500 for 2026 Employees 50 and older can contribute an additional $8,000 in catch-up contributions, for a total of $32,500 Employees 60 to 63 can contribute an additional $11,250 instead, for a total of $35,750⁽¹⁾
Eligibility requirements	No age requirements, but you need earned income to contribute Income limits apply	Determined by plan sponsor
Who can contribute	Anyone can contribute, so long as your income doesn’t exceed a certain threshold	Anyone participating in an employer-sponsored plan
Tax advantages	Earnings grow tax-free Qualified withdrawals are tax-free	Contributions reduce your taxable income Earnings grow tax-free
Withdrawal restrictions	Withdrawals of earnings before age 59.5, or before the account has been open five years, generally incur income tax plus a 10% additional tax (exceptions apply)⁽²⁾ Qualified withdrawals — made after age 59.5 once the account has been open at least five years — are exempt from both income tax and the additional tax on the full balance, including earnings⁽²⁾	Withdrawals before age 59.5 are subject to taxes and penalties If you separate from your employer in or after the calendar year you turn 55, withdrawals from that employer’s plan are taxed but not penalized⁽³⁾
Required minimum distributions (RMDs)	No RMDs	Traditional 401(k): required by April 1 of the year after the account holder turns 73 if born between 1951 and 1959, or 75 if born in 1960 or later Roth 401(k): no lifetime RMDs, effective for 2024 and later⁽⁴⁾
FDIC insurance	Roth IRAs that contain bank deposits such as certificates of deposit (CDs), savings accounts or money market accounts are insured up to $250,000	None
SIPC insurance	SIPC insures cash and securities up to $500,000 at SIPC-member brokers⁽⁵⁾	401(k) plan assets held in a brokerage account at a SIPC-member firm may be eligible for SIPC protection, though coverage details depend on how the plan and its participant accounts are structured⁽⁵⁾
Pros	Tax-free growth and qualified distributions are tax-free No RMDs Withdraw contributions at any time without tax or penalty Flexible investment options	Contributions reduce taxable income Tax-deferred growth Many employers match 401(k) contributions Effortless investing through payroll deductions
Cons	No tax breaks on contributions Can’t contribute above a certain income Lower annual contribution limits than 401(k)s	Investment options are typically limited to mutual funds Traditional 401(k)s have RMDs starting at 73 or 75 Withdrawals are taxed in retirement
	Learn more about Roth IRAs	Learn more about 401(k)s

Roth IRA vs. 401(k): Which one’s better?

Roth IRAs and 401(k)s have different benefits and drawbacks, and one is offered through an employer while the other is opened individually. So, you’ll have to consider certain factors to determine which is better for you.

When to consider a Roth IRA

A Roth IRA is a good option if you:

Want more investment control. Depending on the IRA custodian, invest in anything from stocks and bonds to ETFs, mutual funds and alternative assets like cryptocurrency.
Prefer tax-free distributions in retirement. Because you contribute after-tax money, qualified distributions are tax-free. This may be a good option if you think you’ll be in a higher tax bracket when you retire.
Don’t want RMDs. Unlike traditional IRAs and traditional 401(k)s, Roth IRAs have no RMDs. Mandatory withdrawals are only required after the death of the account owner.⁽⁴⁾
Want access to your contributions. Withdraw your Roth IRA contributions at any time tax- and penalty-free.

Related: Best Roth IRA accounts

When to consider a 401(k)

A 401(k) is a good option if you:

Have an employer who will match your contributions. Matching contributions is essentially free money you shouldn’t leave on the table.
Prefer mutual funds. Mutual funds are the primary investment options for most 401(k)s.
Want to reduce your taxable income. 401(k) contributions are made using pre-tax dollars, and every dollar you save will reduce your taxable income by an equal amount.

Our picks for 401(k) search and rollover services

Capitalize

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Beagle Financial Concierge

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Comprehensive 401(k) search service

Find all your old 401(k)s and their hidden fees
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Robo-advisor available if you roll over your 401(k) to Beagle

The similarities between a Roth IRA and a 401(k)

Roth IRAs and 401(k)s don’t have much in common other than allowing you to grow your retirement savings tax-free. Investment options are different, contribution amounts are different and individuals open IRAs while 401(k)s are employer-sponsored.

Roth IRA vs. 401(k): Where to open these accounts

Open a Roth IRA through banks or traditional brokerages, including Fidelity and Charles Schwab, or with stock trading apps like Robinhood and SoFi Invest®.

401(k)s are only available through an employer.

Alternatives to a Roth IRA and a 401(k)

While Roth IRAs and 401(k)s are great options to help you save for retirement, keep in mind that there are other ways to save:

High-interest savings accounts. Consider a high-yield savings account if you want easy access to cash savings for an emergency fund or other short-term savings goal.
Health savings accounts (HSAs). An HSA is a tax-advantaged savings account that can help you pay for healthcare expenses. Using an HSA, you can put money away and withdraw it tax-free when you need it for qualified medical expenses. At age 65, you can take penalty-free distributions from the HSA for any reason. However, you still need to use your money for medical expenses to avoid taxes.

Compare brokerages that offer IRA accounts

Narrow down top brokers by annual fee, stock trade fee and more to find the best for your budget and financial goals.

8 of 8 results

Finder Score	Minimum deposit	Annual fee	Retirement account types
8.4 Great SoFi IRA	8.4 Great	$0	$0 per month	Roth, Traditional, SEP, Rollover	Trade stocks, options, ETFs, mutual funds and alternative asset funds.	Go to site View details	loading
8 Great Vanguard IRA	8 Great	$0	$20 per year	Roth, Traditional, SEP, Spousal, Rollover	Save for retirement with Vanguard's commission-free stocks, ETFs and 160+ no-transaction-fee mutual funds.	Go to site View details	loading
Not scored yet IRA Financial	Not scored yet	$0	$495 per year	Self-Directed IRA, Checkbook IRA, Solo 401(k), SEP IRA	Open a self-directed retirement account and unlock greater flexibility over your retirement funds. Invest in alternative assets including real estate, private businesses, crypto and precious metals	Go to site View details	loading
8 Great Public IRA	8 Great	$1	$0 per month	Roth, Traditional, Rollover	Go to site View details	loading
9.4 Excellent Webull IRA	9.4 Excellent	$0	$0 per month	Roth, Traditional, Rollover	Trade stocks, ETFs and equity options commission-free, with access to futures, advanced charting tools, a robo-advisor and event trading powered by Kalshi.	Go to site View details	loading
8.4 Great Acorns Later	8.4 Great	$0	$3 per month	Roth, Traditional, SEP	Automatic ETF investing with as little as $5. Annual fee of $3, $6 or $12 per month depending on subscription.	Go to site View details	loading
9 Excellent Wealthfront	9 Excellent	$500	0.25%	Roth, Traditional, SEP, Rollover	Automate your stock and bond portfolio or trade individual stocks for as little as $1 apiece. Plus, earn 3.50% APY on your cash.	Go to site View details	loading
8.8 Great Robinhood Retirement	8.8 Great	$0	$0 per month	Roth, Traditional, Rollover	Boost your retirement savings with 1% in matching funds on every dollar contributed, transferred or rolled over to a Robinhood IRA.	View details	loading

Showing 8 of 8 results

What is the Finder Score?

The Finder Score crunches 147 key metrics we collected directly from 18+ brokers and assessed each provider’s performance based on nine different categories, weighing each metric based on the expertise and insights of Finder’s investment experts. We then scored and ranked each provider to determine the best brokerage accounts.

We update our best picks as products change, disappear or emerge in the market. We also regularly review and revise our selections to ensure our best provider lists reflect the most competitive available.

Read the full breakdown

Paid non-client promotion. Finder does not invest money with providers on this page. If a brand is a referral partner, we're paid when you click or tap through to, open an account with or provide your contact information to the provider. Partnerships are not a recommendation for you to invest with any one company. Learn more about how we make money.

Finder is not an advisor or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.

Frequently asked questions

When deciding whether to keep money in a traditional 401(k) or a Roth IRA, consider the pros and cons of both. For instance, 401(k) money goes in pre-tax, and your contributions to the account reduce your taxable income. However, you have to pay taxes when you withdraw funds in retirement. With a Roth IRA, you contribute post-tax dollars and don't get a tax deduction for contributing, but you don't have to pay taxes on qualified distributions in retirement.
A Roth 401(k) isn't better or worse than a traditional IRA. The two types of accounts are simply different. A Roth 401(k) might be better for you than a traditional IRA if you want to invest easily through payroll deductions and enjoy tax-free withdrawals in retirement. A traditional IRA might be better if you want more control over your investment options and take a tax deduction on your contributions.

Finder writers are subject matter experts and use primary sources, in-depth research and interviews with other experts to ensure you're getting accurate, up-to-date information. Articles are fact checked in line with our editorial guidelines.

Thank you for your feedback!

To make sure you get accurate and helpful information, this guide has been edited by Matt Miczulski as part of our fact-checking process.

Written by

Frank Corva

Writer

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Frank Corva is business-to-business (B2B) correspondent for Bitcoin Magazine and formerly the cryptocurrency writer and analyst for digital assets at Finder. Frank has turned his hobby of studying and writing about crypto into a career with a mission of educating the world about this burgeoning sector of finance. He worked in Ghana and Venezuela before earning a degree in applied linguistics at Teachers College, Columbia University. He also taught writing and entertainment business courses in Japan and worked with UNICEF in Namibia before returning to the US to teach at universities in New York City. Earlier in his career, he spent years working as a publicist and graphic designer for record labels like Warner Music Group and Triple Crown Records. During that time, he was also a music journalist whose writing and photography was in published in Alternative Press, Spin and other outlets. See full bio

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