06 May Should I use a Roth 401(k) or a Roth IRA?

Q. I have a 401(k) with a Roth and a regular option. I have no Roth IRAs. How can I decide if I should use the Roth 401(k) or open a Roth IRA? I don’t have a lot of extra cash, so if you say Roth IRA I may need to save less to the 401(k).
— Investor

A. It’s a great question.

There are pros and cons to both options.

The pros of a Roth 401(k) are that it comes with higher contribution limits, an employer match and no income limits, said Bill Connington of Connington Wealth Management in Paramus.

The cons are that the Roth 401(k) will have fewer investment choices limited to your plan and required minimum distributions (RMDs) at age 73, he said.

A Roth IRA has many more investment options, no RMDs, and penalty-free access to contributions, Connington said, while the cons are the lower contribution limits and income limits.

“So a strategy you could use is to invest in the Roth 401(k) and get the employer match, and then open a Roth IRA if income and cash flow allows,” he said.

You don’t want to give up the free money, for sure.

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This story was originally published in May 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.