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401K vs ROTH IRA   (Comparison)


There are some similarities and some differences between 401k and Roth IRA. Here are the some important differences between them.

Contribution: The money you put in 401k or Roth IRA account.
Earnings: It is the money you earn on contributed money (interest or capital gain).

401K     ROTH IRA              
2008 Max Contribution is $15000         2008 Max Contribution is $5000
Contribution is tax deductible with criteria . Contribution is NOT Tax-Deductible.  
Contribution is before tax money. Contribution is aftertax money .
Tax is deferred, not eliminated. Tax is already cut before contribution.
There is tax and penalty onwithdrawal before age 59 1/2 yrs. Contribution (not earnings) can be taken out any time, no tax/ no penalty.
After retirement (59 1/2yrs), withdrawals (contribution & earnings) are taxed. After retirement, withdrawals (contribution & earnings) are tax  FREE!!
Earnings(gain) are taxable!
 Earnings(gain) are tax Free!
Either extra money gets invested or extra money in hand immediately. Extra money nothing but tax goes to  Uncle Sam (IRS) immediately.


Read more about each one in detail below:

Where to invest, 401k or ROTH IRA?

There is conventional wisdom followed as follows:

  1. First invest in 401k upto the matching amout by employer.
  2. Then put money in Roth IRA upto max amount.
  3. Then if you still want to invest more in retirement then put remaining  in 401k.

Search for more 401k & ROTH information with Google below.

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