Effective January 1st, 2006, employers now have the ability to combine the retirement options provided by traditional 401k retirement plans and Roth IRA plans into one effective plan, called simply, the Roth 401k. The Roth 401k is essentially similar to the traditional 401k and Roth IRA plans but differs in some ways as well. Below, we have outlined the main similarities and differences between the three:
Workers who already have a 401k plan can take out a Roth 401k plan if their employer offers it. However, the total amount contributions by both the Roth 401k and the traditional 401k plan cannot exceed $18000 in the year 2015 (or $23,500 for employees over the age of 50). Participating in both plans means you can select how much money you want to put into each.
Note: Be careful in selecting where you want to put your money, because once you do, you are not allowed to exchange or switch money between the plans.
Comparison Table
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Roth 401k Plan
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Roth IRA
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Traditional 401k Retirement Plan
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| Contributions made with after-tax dollars (after taxes have been paid). | Contributions made with after-tax dollars (after taxes have been paid). | Contributions made with before-tax dollars (BEFORE taxes have been paid). |
| Money must be withdrawn before the age of 70.5 | No maximum age before which money must be withdrawn | Money must be withdrawn before the age of 70.5 |
| Cash Withdrawals from the plan are not taxable provided the retiree is atleast 59.5 years old and has had his account for >5 years | Cash Withdrawals from the plan are not taxable provided the retiree is atleast 59.5 years old and has had his account for >5 years | Cash withdrawals are taxable both at the Federal and Local State levels. |
| Cash contributions are limited to $18,000 in 2014 ($23,500 for workers over the age of 50). | Cash contributions limited to $5500 in 2015 ($6500 for workers over the age of 50). | Cash contributions are limited to $18,000 in 2015 ($23,500 for workers over the age of 50). |
| Is available under any income and tax brackets | Income limits of: – Married couples ($183,000 – $193,000) – Singles ($116,000 – $131,000) – Adjusted Gross Income |
Is available under any income and tax brackets |
| Investment grows without any tax deductions | Investment grows without any tax deductions | Investment is not taxable to Federal and State taxes as long as it is accumulating interest. – Upon withdrawals, the income is taxable |