{"id":1726,"date":"2022-06-16T20:21:58","date_gmt":"2022-06-16T20:21:58","guid":{"rendered":"https:\/\/blog.ark7.com\/?p=1726"},"modified":"2023-05-18T04:21:44","modified_gmt":"2023-05-18T04:21:44","slug":"401k-vs-roth-ira-which-one-is-right-for-me","status":"publish","type":"post","link":"https:\/\/ark7.com\/blog\/learn\/in-depth\/401k-and-iras\/401k-vs-roth-ira-which-one-is-right-for-me\/","title":{"rendered":"401(k) vs. Roth IRA: Which One is Right for Me?"},"content":{"rendered":"
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By now, you\u2019ve likely heard the terms 401(k) and Roth IRA over and over again\u2014whether from your parents, online finance bro, or your employer. But, what does it all really mean, and how are you supposed to know which one to invest in? In this guide, we\u2019ll go over the fundamentals of both retirement savings accounts so you can make the most informed decision on which one best suits your future goals.<\/span><\/p>\n

1. What is a 401(k)?<\/span><\/h1>\n

401(k) accounts<\/span><\/a>\u00a0are employer-sponsored retirement plans. To contribute to these types of retirement accounts, an employee designates a portion of each paycheck that automatically gets diverted into their 401(k) account. These contributions take place before income taxes and are automatically deducted from the employee\u2019s paycheck.<\/span><\/p>\n

Several different investment options vary from a 401(k) plan to a 401(k) plan and from provider to provider and employer to employer. 401(k) plans usually offer a combination of mutual funds and exchange-traded funds (ETFs). No matter which type of 401(k) you are enrolled in, investment gains are not taxed by the IRS until you withdraw them \u2014 compared to Roth IRA accounts, of which the qualified withdrawals are never taxed.<\/span><\/p>\n

1.1. Contribution limits<\/b><\/h2>\n

The contribution limits for 401(k) accounts are significantly higher than those for Roth IRAs and are as follows for 2022:<\/span><\/p>\n