Comparing IRA Accounts
Roth IRAs are most similar to Roth 401 k retirement plans. Let us compare them to see which offers a better deal or which is more suitable to which section of our taxpayers.
When we compare Roth IRAs with Roth 401 k, the most important implication is that of tax benefits. It is observed that tax implications are the same in both these products as the contributions are directed only after taxes. These contributions do not bring down the Adjusted Gross Income of the taxpayer. As far as income limits are concerned, both these plans discriminate against high income taxpayers, and these limits are clearly defined in the case of Roth IRA. Generally Roth 401 k does not stipulate a cap (limit) but there are specification give in case of Highly Compensated Employees (HCE).
Contribution of funds has to be less than $ 46,000 (for the employer and employee together) in case of Roth 401 k while for Roth IRA in 2009 the limits were $ 5000per year for employees below age 50 and $ 6000 for employees of age 50 and above.
The main difference when we compare Roth IRA accounts is that Roth IRAs can be designed and planned by the taxpayer to suit his convenience while there is the structure is set by the employer in keeping with the standards set by the IRS (Internal Revenue Service of the Federal Government of United States) for the Roth 401 k. And the other difference is that matching contributions are available in the Roth 401 k while in the Roth IRA there is no question of the participation of the employer. However the employer’s matching contributions made in Roth 401 k should be limited to the separate pre-tax account.
Upon this effort to compare Roth IRA accounts, it can be said that Roth IRA suits the avid experimentation-savvy fund planner while Roth 401 k suits more conventional taxpayer.
