Differences between 401(k), Roth 401(k) and Roth IRA | Ed Slott and Company, LLC

Differences between 401(k), Roth 401(k) and Roth IRA

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

We are starting to get asked whether or not there are required distributions from Roth 401(k), Roth 457(b), and Roth 403(b) accounts. The answer is – Yes. Following is our chart that compares some of the features of Roth IRAs, Roth 401(k)s, and 401(k)s. For ease, we refer to all Roth employer plans as Roth 401(k)s, but that includes Roth 403(b) and Roth 457(b) accounts as well.

 

Roth 401(k) Comparison Chart


 Roth IRARoth 401(k)401(k)
Contribution/Deferral Limits*$5,500 for 2014 plus $1,000 catch-up if you are 50 or older$17,500** for 2014 plus $5,500 catch-up if you are 50 or older$17,500** for 2014 plus $5,500 catch-up if you 50 or older
Matching ContributionsNoneIf the plan allows***If the plan allows
Income LimitsYesNoneNone
Taxability of ContributionsContributions are after-taxDeferrals are after-taxDeferrals are pre-tax
RolloversOnly to other Roth IRAsOnly to Roth IRAs or Roth employer plansTo most other retirement plans - To Roth IRAs; To Roth 401(ks) as of late 2010
Required DistributionsNone to Roth IRA ownerAt age 70 1/2 (If you are still working and are not a 5% owner, distributions are deferred until you are no longer working)At age 70 1/2 (if you are still working and are not a 5% owner, distributions are deferred until you are no longer working)
Non-Qualified DistributionsUse Roth ordering rulesUse pro-rata ruleNot applicable
Qualified DistributionsMade 5 years after date first Roth IRA was established AND after age 59 1/2, OR Death, OR Disability, OR first-time homebuyerMade 5 years after date each Roth 401(k) was established AND after age 59 1/2, OR Death, OR DisabilityNot applicable

*An individual who has traditional IRAs and Roth IRAs can contribute a maximum total of $5,500 to all their IRAs (in 2014), not to each IRA. An employee with a 401(k) and a Roth 401(k) can defer a maximum total of $17,500 (in 2014) to both types of accounts, not to each account. If age 50 or older, the catch-up amount is added to the contribution or deferral amount.
** Contribution limits for governmental Roth 457(b) and 457(b) plans are different from other employer plans
***Matching contributions cannot be allocated to the Roth 401(k) account. They must go into the 401(k) account.

The reason you have differences between Roth IRAs and Roth 401(k)s, including required distributions from the Roth 401(k), is that the employer plan rules apply to Roth 401(k) accounts. However, you can get out of the required distributions from the Roth 401(k) by rolling those assets to a Roth IRA before the year you turn 70 ½.

 

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