What Reporters Ask: Roth 401(k) vs. Roth IRA — The Overlooked Nuances
- Rich Arzaga
- 5 days ago
- 2 min read
How should someone decide between contributing to a Roth 401(k) and a Roth IRA?
One of the unique aspects of my work is that I occasionally get to respond to questions from national financial and business reporters preparing stories for prominent outlets like CNBC, MarketWatch, and AARP. These reporters are trying to make sense of complex financial planning issues for a broad audience — and they often come to practicing advisors for perspective.
I thought it would be valuable to start sharing some of these questions (and my answers) here. I hope this gives you insight into what the media is curious about, how these topics are framed, and how I respond in a way that balances technical accuracy with practical, real-life perspective.
This first one came from a CNBC reporter who asked: “How should someone decide between contributing to a Roth 401(k) and a Roth IRA? What are some of the overlooked benefits and downsides?”
Here’s how I answered…
The best answer is that it depends on your facts and circumstances — but some overlooked nuances can make a big difference in the choice between Roth 401(k) and Roth IRA contributions.
1. Plan Access and Flexibility
The decision tree often starts with what’s even available. Some employer plans don’t offer a Roth 401(k) option, or their design may limit contributions. In contrast, a Roth IRA is available to anyone with earned income, subject to contribution limits, and often comes with more investment flexibility.
2. Contribution Limits and Cash Flow
A Roth 401(k) allows for much larger contributions — up to $23,000 in 2024 (plus catch-up if over 50) — compared with $7,000 for a Roth IRA. For someone who has the cash flow and wants to maximize tax-free retirement savings, the Roth 401(k) is hard to beat. But if household bills limit what you can realistically save, even a modest Roth IRA can be the right fit.
3. Creditor Protection
One nuance that’s rarely discussed: Roth 401(k)s typically have stronger federal creditor protections than IRAs, though protections for IRAs vary by state. For high-risk professions or entrepreneurs, this can be a deciding factor.
4. Lifetime Tax Planning
A real-world example: I had a client who was self-employed with significant cash flow and taxable income each year. At first glance, a deductible 401(k) contribution seemed best to lower her current tax bill. But when projecting her lifetime taxes, we saw that all those pre-tax contributions would result in hundreds of thousands of dollars in required taxable distributions in retirement. Shifting to Roth 401(k) contributions meant paying more in taxes today, but ultimately saving her hundreds of thousands in lifetime taxes — and leaving her beneficiaries a much larger, entirely tax-free inheritance.
Bottom Line
The choice between Roth 401(k) and Roth IRA isn’t just about this year’s tax bill — it’s about contribution capacity, plan design, creditor protection, and, most importantly, lifetime tax strategy.
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