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).
|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!!|
|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:
- First invest in 401k upto the matching amout by employer.
- Then put money in Roth IRA upto max amount.
- Then if you still want to invest more in retirement then put remaining in 401k.
Search for more 401k & ROTH information with Google below.