8 Benefits of Roth IRA Over 401k

More than 40 percent of people in the US won’t have enough money to be financially secure in retirement. If you’re one of them, it may be time to review the options available for your retirement savings.

 Are you looking at the difference between a Roth IRA and a 401k? Here are some benefits of Roth IRA over 401k.

1. Tax-Free Growth Potential

When you contribute to a Roth IRA, you’re using after-tax dollars. You don’t receive a deduction on your income taxes, but any investment income or gains inside the plan are tax-free. It’s a great financial planning tool for the future.

If you begin making contributions when you’re young, you have time on your side. The contributions in a Roth IRA will grow tax-free for longer. It’s a great way to build wealth that you can withdraw in the future.

If you believe that tax rates will go up in the future, a Roth IRA will protect you from paying a high tax rate on the earnings in your plan. You save tax today with a 401k plan, but you’ll pay tax at a higher rate on your contributions and investment earnings when you withdraw them.

2. Withdrawals Are Tax-Free

You can withdraw contributions and earnings from a Roth IRA free from federal income taxes when you meet certain conditions. The withdrawals may be free from state and local taxes as well.

With a Roth IRA, you pay tax on your income today instead of paying tax on your withdrawals in the future. When you contribute to a 401k, you receive a tax break today, but you will pay taxes when you withdraw the money in the future. If you inherit a Roth IRA, distributions are tax-free in most cases.

3. Access Your Money Anytime

When you have a Roth IRA, you can take out your money when you need it, even if you haven’t reached the early withdrawal age of 59 1/2 years. The earnings in your account might be taxable if the account is less than five years old.

You can avoid penalties in specific circumstances. Here are some of the situations where this would apply:

  • qualified education expenses
  • a limited amount for a first time home purchase
  • qualified birth or adoption costs
  • certain medical or health insurance payments if you’re unemployed

After age 59 1/2, if you’ve held your Roth IRA for more than five years, all of your withdrawals are tax and penalty-free. You also have the option of leaving your money in the Roth IRA, allowing it to grow tax-free until you need it.

Early withdrawals from a 401k can attract fines and a tax penalty of 10 percent. This is on top of the federal and state income tax owing on the amount you take out.

These amounts add up, so it’s better to leave your money in a 401k plan until you reach the age of 59 1/2. Then you can take out your money without penalty, but you will pay tax.

These complex rules depend on quite a few factors. If you’re planning to withdraw your money early from either plan, consult a financial professional for advice.

4. Minimum Distributions Aren’t Required

Traditional IRA and 401k plans require that you take out specific withdrawals once you reach the age of 72. These are called required minimum distributions or RMDs. You must calculate the RMD amount each year and withdraw it as taxable income.

These required withdrawals can be a problem for future tax planning. A Roth IRA has no requirement to take out minimum amounts, making it a more flexible tax planning product. Inherited Roth IRAs do require minimum distributions.

5. You Control Your Retirement Savings

An IRA is a retirement account that an individual can open independently. Your employer opens a 401k on your behalf. Roth IRAs are a flexible option for employees with 401k plans as you can contribute savings to both plans at once. An IRA has lower contribution limits than a 401k.

A Roth IRA gives you the ability to change jobs without losing your savings. You don’t have to roll over savings plans to a new employer’s account or keep track of old 401k accounts. A Roth IRA lets you make contributions as long as you work, no matter who you work for.

6. Gain Flexibility When You Retire

You can decide when to take out the money when it’s in a Roth IRA, and it’s tax-free as long as you follow the rules. You can take a combination approach and manage your income tax bracket in retirement. 

You could take money out of a 401k up to a tax bracket, paying a lower tax rate. Then you could top up your income by taking the rest from your Roth IRA. 

7. Flexible Estate Planning

The rules for an inherited Roth IRA are different than a 401k. The advantages and disadvantages of using a Roth IRA vs. a 401k are complex. They can be an essential part of your estate’s financial plan.

It’s important to contact an expert if you will use a Roth IRA as part of your estate planning. With a Roth IRA, distributions are still tax-free to your heirs, but they must take out minimum distributions. 

8. You Can Convert Your Savings

If you have savings in a traditional IRA or 401k, you have the option to convert some of that money over to a Roth IRA. You’ll have to pay tax on the money when you move it over. Any investment income earned in the future would be tax-free in the Roth IRA.

Conversions may affect your Medicare or Social Security benefits, so it’s good to understand the rules before deciding. Consult with a professional to find out the best option for you.

Benefits of Roth IRA Over 401k 

Most people don’t think about their retirement needs until they are ready to create a plan. That’s an excellent time to meet with our professional team. We are your trusted retirement planning services partner, and we will design the retirement plan that is right for you.

Contact Bogart Wealth today to discuss the benefits of Roth IRA over 401k plans. We are happy to provide wealth management services in McClean, VA, and Greater Houston, TX.


Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.comPlease Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

latest posts

Stay up to date with our most recent news and updates!

IT Support by SADOSSecure, Fast Hosting for WordPress

Work with a financial advisor who puts your needs first.

Want to talk first? Call us at
(866) 237-0121

  • This field is for validation purposes and should be left unchanged.

You are now leaving the Bogart Wealth, LLC / Bogart Wealth™ (“Bogart”), website and entering a third party website that we do not control.

Bogart is not responsible for third party websites hyper linked our website, and does not guarantee or necessarily endorse any content, recommendations, products or services offered on third party sites.

In addition, third party websites may have different privacy and security policies than Bogart. Therefore, you should review the applicable privacy and security policies of any third party website before you provide any information.