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 | 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 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 leave your job the year you turn 55, withdrawals 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 | 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) |
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| Learn more about Roth IRAs | Learn more about 401(k)s |
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.
A Roth IRA is a good option if you:
A 401(k) is a good option if you:
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.
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.
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:
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