Roth IRAs can help you save for retirement and enjoy tax-free growth. However, 401(k)s can help you reduce your tax liability for the current tax year. So, which is better?
In a perfect world, you could max out the contributions to both accounts and reap all the benefits. However, both may not be available or you may have limited funds to invest. When the latter is the case, here's what to consider.: Does your employer offer 401 contribution matching? If so, you'll typically want to take full advantage of the free money on the table. : If you expect to be in a higher tax bracket in retirement, a Roth IRA can be more advantageous.
: With a 401, you can contribute more than three times what you can to a Roth IRA. : 401s have no income limits while high-income earners are restricted from direct Roth IRAs contributions. A 401 requires you to begin taking distributions at age 72, a Roth IRA doesn't. If you want to pass a Roth IRA on to a beneficiary, you can do so without ever taking distributions from it. n: 401 plans offer the perk of automatic payroll deductions while Roth IRAs don't.