The Key Differences Between Roth IRAs and Roth 401(k)s & Why They Matter

You are receiving this email because you signed up to receive Bob Carlson's free e-letter Retirement Watch Weekly, or you purchased a product or service from its publisher, Eagle Financial Publications. [Carlson's Retirement Watch Weekly] [Retirement Reports](www.retirementwatch.com/retirement-resources/) [Retirement Articles](www.retirementwatch.com/retirement-articles/) Brought to you by Eagle Financial Publications The Key Differences Between Roth IRAs and Roth 401(k)s & Why They Matter by Bob Carlson Editor, [Retirement Watch]( 09/24/2023 SPONSORED [R.I.P. for the American Dream? (Surprising answer inside...)]( [image]( A record-low happiness level is seeping through the nation's fabric like wildfire. The culprits? The floundering state of the economy… rising housing and rent costs…and inflation. It's called the "opportunity gap", and the bad news is it's only getting wider. 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Distributions of income from Roth accounts are tax-free after the five-year waiting period. But Roth IRAs and Roth 401(k)s aren’t exactly the same, and you should know the differences. The knowledge will help you decide whether to open a Roth 401(k) or Roth IRA. It also might influence a decision of whether to keep money in a Roth 401(k) or roll it over to a Roth IRA. The contribution maximums of the two accounts are different. The maximum IRA contribution is $6,000 in 2022 with an additional $1,000 catch-up contribution for those age 50 or older. But the maximum deferral to a 401(k), whether Roth or traditional, is $20,200 in 2022 with an additional $6,500 catch-up contribution allowed for those 50 and older. There also is an income limit for contributions to Roth IRAs. The maximum contribution begins to be reduced for a single taxpayer when adjusted gross income exceeds $129,000 and is reduced to $0 when adjusted gross income exceeds $144,000. For married couples, the phaseout begins at $204,000 and ends at $214,000 of adjusted gross income. There are no income limits for 401(k) contributions. Employers can make matching contributions to Roth 401(k)s just as they can with traditional 401(k)s. SPONSORED [Do you or any of your children need Term Life insurance, but don’t want to go through the tedious process of getting it?]( [image]( Not to worry – we have made the process of getting Term Life insurance as easy as 1, 2, 3. With one click, if you are healthy and under age 65, you can get a Term life insurance policy up to $2 million, potentially without a medical exam. With one click, you can have an agent-free experience, where you can log in to our user-friendly website, quote yourself, apply, and put your policy in force in less than 15 minutes. With multiple carriers to choose from, you can pick and choose which option fits your financial situation and properly protects those you care most about. It truly is as easy as it sounds. Anytime, anywhere, with one click you can get term life insurance. So, what are you waiting for? [Go ahead and click here now.]( [CLICK HERE...]( The maximum of combined employer and employee contributions is the same for both traditional 401(k) and Roth 401(k) accounts, $61,000 or 100% of the employees’ compensation (whichever is lower) in 2022 or $67,500 for those 50 and older. But employer matching contributions to a Roth 401(k) are of pre-tax dollars. They won’t be included in your gross income and will be placed in a traditional 401(k) account. Distributions from that account will be taxed as ordinary income. Most Roth IRAs can be invested in any publicly traded investment. But Roth 401(k)s can be invested only in the investment options made available by the plan. A Roth 401(k) might have a brokerage window option that allows the account to be invested in almost any publicly traded investment. Many people don’t realize there’s a major difference in required minimum distributions (RMDs). There are no RMDs for original owners of Roth IRAs. But there are RMDs for Roth 401(k)s starting at age 72, unless the account owner still is working for the employer and owns less than 5% of the employer. The RMDs from Roth 401(k)s are tax free, but you must begin taking them. Because of the RMD requirement for Roth 401(k)s, you might want to have a Roth 401(k) while working but roll it over to a Roth IRA before age 72. You can take tax-free loans from a Roth 401(k) under certain circumstances, but you can’t take a loan from a Roth IRA. You can only take distributions from a Roth IRA, and there will be a 10% penalty if it is taken before age 59½ – unless you qualify for one of the exceptions. To a better retirement, [Bob Carlson] Bob Carlson Editor, Retirement Watch Weekly Editor’s Note: The legendary tech futurist who predicted the rise of Amazon, Netflix, and Apple YEARS in advance now says: “The biggest, most profitable technological advances in the future will ALL stem from this single breakthrough. With this investment, your retirement nest egg is about to change for the better, forever. [Click here to learn more.]( SPONSORED [A.I. Is Reshaping Investing: Are You Prepared?]( [image]( Traditional investing is out the window – A.I. investing has arrived. This dual-patented generative A.I. can predict market trends 1–3 days in advance. [Join this FREE online A.I. training class to learn more>>]( [CLICK HERE...]( Want More Retirement Advice? Check out my website, [RetirementWatch.com](, where you’ll find hundreds of free articles covering every aspect of retirement planning. 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