Differences Between a Roth 401(k) and a Roth IRA
(You can have both a Roth 401(k) account and a Roth IRA account. The contribution limits are separate.)
Roth 401(k) Maximum contribution (2007) Catch-up contribution for individuals age 50 or older (2007) Who can contribute? $15,500 $5,000 Any eligible employee
Roth IRA $4,000 $1,000 Only taxpayers who earn less than: Single: $114,000 Married (filing jointly): $166,000 Married (filing separately): $10,000 No No At least $1,0095,000 (as of 4/1/07, all IRAs aggregated)7 No
3
Lifetime required distributions after Yes age 70½?1 Potential employer matching contribution?2 Creditor protection in bankruptcy Loans available? Five-year waiting period for qualified distributions? Distributions4 Qualified tax-free distributions4 Nonqualified distributions Rollovers Yes Unlimited Yes, if plan permits Yes, from time you contribute to the plan Upon termination of employment, age 59½, hardship, disability, and death 59½, disability, and death Pro-rata distribution of tax-free contributions and taxable earnings To a Roth IRA, Roth 401(k), or Roth 403(b); From a Roth 401(k) or Roth 403(b)5,6 Limited to investments offered by employer
Yes, from time you contribute to ANY Roth IRA Any reason 59½, disability, death, first-time homebuyer (up to $10,000) Tax-free contributions distributed first, then taxable earnings To and from a Roth IRA; From a Roth 401(k) or Roth 403(b)6 Virtually unlimited
Investment choices
1
You can avoid required distributions by rolling over balance to a Roth IRA, but subsequent application of 5-year rule is unclear.
2
Employer contributions and earnings are taxable when distributed.
3
Or from the time you contributed to a previous employer's Roth 401(k) plan, if you rolled over your balance from that plan to the current plan.
4
Depending on plan terms. Taxes and potential penalties apply to earnings paid in a nonqualified distribution. Nontaxable dollars can't be rolled over from a Roth 403(b) account to a Roth 401(k) account.
5
6
Direct rollovers permitted from qualified (i.e., 401(k)), 403(b), and 457(b) plans to Roth IRAs beginning in 2008 (subject to current law rules that generally apply to rollovers from traditional IRAs to Roth IRAs).
7
Amounts rolled over from an employer qualified plan or 403(b) plan, plus earnings on the amount rolled over, also have unlimited creditor protection.