With a Roth 401 (k), the main difference is when the IRS keeps its share. You make contributions to the Roth 401 (k) with money that has already been taxed, just like you would with a Roth Individual Retirement Account (IRA) backed by Gold. So all profits grow tax-free and you don't pay taxes when you start withdrawing money when you retire. In many cases, a Roth IRA backed by Gold may be a better option than a 401 (k) retirement plan, as it offers more investment options and greater tax benefits. It can be especially useful if you think you'll find yourself in a higher tax bracket later on.
However, if your income is too high to contribute to a Roth, your employer offers you a counterpart, and you want to save more money each year, it's hard to beat a 401 (k) plan. Because your contributions to the Roth 401 (k) plan are made after you pay taxes, you now pay taxes and take home a little less of your paycheck. If it makes sense for your situation, a conversion to Roth is a great way to take advantage of the tax-free growth of your accounts. A Roth IRA makes sense at any age at the beginning or even at the end of your career, so consider your retirement savings options and, if they're appropriate for your financial and income goals, open one as soon as possible.
Finally, and this is a bit complicated and not always available, you can sometimes have more access to your funds in a Roth 401 (k) than in a Roth IRA. The traditional 401 (k) plan balance would then be reduced according to the tax rate when you retire, while the balance of the Roth 401 (k) plan would remain in full. You control your Roth IRA and your investment options are not limited as 401 (k) plan investment options usually are. Both Roth and 401 (k) IRAs are popular tax-advantaged retirement savings accounts that allow your savings to grow tax-free.
Even without the appeal of saving more, the Roth 401 (k) beats the Roth IRA in terms of ease that goes far beyond wage deferral. In other words, the amount you can contribute to a Roth IRA depends, in part, on how much you earned in a year. The Roth IRA doesn't require minimum distributions, so you can keep that money and transfer the account to your heirs. The bottom line is that you have “the potential to save a huge amount more on a 401 (k) than on a regular Roth IRA,” says Derek Amey, partner and advisor at StrategicPoint Investment Advisors in Providence.
That's not always true, but in many ways, you can save much more by contributing to a Roth 401 (k) than to a traditional Roth IRA. With a Roth 401 (k) plan, you can take advantage of the company's counterpart to pay your contributions, if your employer offers it the same as a traditional 401 (k).
