Key Considerations When Choosing Between a Roth 401k and a Roth IRA

Here are three things you need to consider if you're choosing between a Roth 401k and a Roth IRA.

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1. Investment Options

The Roth IRA typically will give you greater investment options as employers usually have to pay more money with the 401k plans to get more investment options. So, the 401k can be relatively limited and maybe force you into a fund that costs a little more than you'd like to pay.

2. Contribution Withdrawals

You can't take back contributions to a Roth 401k immediately due to the five-year rule. In contrast, you can take back contributions anytime you want, penalty and tax-free from a Roth IRA.

3. Administrative Fees

There are also almost always administrative fees for the Roth 401k. This is not true for the Roth IRA. When working for employers, some employers pay that admin fee. Once you've left that job, the fee falls on you, which can add up quickly. This, combined with the higher fund fees, could equal up to 1%. It’s like hiring a financial advisor just to be in a 401k.

4. Contribution Limits

Even though there are higher contribution limits for the 401k, it’s always worth checking fees and doing what’s right for you at a certain point in time.

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