Q&A of the week July 1, 2021
Answer:
The money contributed to both a Roth IRA and a Roth 401(k) grow tax-deferred and are tax-free in retirement.
A Roth IRA is typically through a brokerage so there are a lot of investment options. Contributions are limited to $6,000 per year, with an additional $1,000 catchup contribution for individuals age 50 and over. There are income limits so higher earners cannot make contributions to a Roth IRA. Withdrawals can be made without paying tax or penalties. There is not a required minimum distribution (RMD) for Roth IRAs.
A Roth 401(k) is typically through an employer and the investment options are limited. You can contribute up to $19,500 per year to a Roth 401(k), and up to $26,000 if you are over age 50. A Roth 401(k) doesn't have an income limit, so higher earners are able to make contributions. Withdrawals are taxable if you are under age 59 1/2, and tax-free if you are over that age. There is an RMD for Roth 401(k) accounts.
If your Roth 401(k) is through your employer and you leave your job, you have the opportunity to roll your account into a Roth IRA.
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