Roth IRA vs. 401(k): What's the Difference?

A 401(k) is a retirement account offered through an employer. Contributions are typically made before tax (reducing your taxable income now), and the money grows tax-deferred until you withdraw it in retirement, at which point withdrawals are taxed as regular income. Many employers also match a portion of what you contribute — if yours does, that match is effectively free money on top of your own contribution.

A Roth IRA is opened on your own, independent of any employer, at a brokerage of your choosing. Contributions are made with money you've already paid tax on, but — assuming you follow the rules — qualified withdrawals in retirement, including all the growth, are completely tax-free. Roth IRAs also have income limits that determine whether you're eligible to contribute directly, and those limits (like contribution limits generally) change periodically, so it's worth checking the current rules on IRS.gov rather than relying on a number that may be out of date.

The simplest way to think about it: a traditional 401(k) gives you a tax break now and taxes you later; a Roth IRA taxes you now and gives you tax-free growth later. Which one is more advantageous can depend on things like whether you expect your tax rate to be higher or lower in retirement than it is today — something worth thinking through for your own situation rather than assuming one is universally better.

They aren't mutually exclusive — many people contribute to both, especially once they've captured any employer 401(k) match.

A 401(k) isn't automatically "better" just because it might come with a match — the match itself is valuable, but the account type's tax treatment is a separate question from whether a match exists.

Contribution and income limits change periodically — always confirm the current-year figures rather than relying on something you read a while ago (including this page).