When it comes to planning for your golden years, not all savings accounts are created equal. There is a powerful retirement tool that may be worth considering if available to you – the Roth 401(k). Compared to its popular cousin, the Roth IRA, the Roth 401(k) has several advantages that may be worthy to evaluate for your retirement planning.
Let it be known that both a Roth 401(k) and Roth IRA have tremendous after-tax benefits that can supercharge your retirement saving. Both are great investment vehicles and their appropriateness for your overall portfolio should be discussed with a financial professional. This article is solely meant to highlight the specific benefits of a Roth 401(k).
Top 5 Reasons to Consider a Roth 401(k)
No Income Restrictions
Unlike Roth IRAs, anyone can contribute to a Roth 401(k), regardless of how much they earn now or in the future. Roth IRAs, however, start phasing out participation at increased salary levels. With a Roth 401(k), you never have to worry about suddenly making too much to be eligible.
Free Money Through Employer Match
If your employer matches your 401(k) contributions, you had best take advantage of that! Roth IRAs do not allow for these valuable employer funds, while their counterpart, the Roth 401(k) does. You should always try to contribute at least the minimum to receive your employer’s full match if you can afford to do so.
Auto-Pilot Retirement Savings
Automatic Roth 401(k) contributions via workplace payroll deductions make hands-off saving effortless. Out of sight, out of mind. Roth IRAs may require self-initiated deposits, which can be less consistent.
Higher Contribution Limits
With the Roth 401(k), you can maximize your savings potential by contributing up to $23,000 in 2024. With the Roth IRA, those limits are significantly less and you may only contribute $7,000 ($8,000 if you are over 50).
Retirement Strategy Simplification
Your employer makes choosing funds easier with the Roth 401(k). They take on the responsibility of ensuring you have appropriate and diverse fund choices as a bonus of working for the company.
When it comes to building a healthy financial future, the Roth 401(k) has tremendous benefits. While the familiar Roth IRA maintains unique strengths that should be considered, the Roth 401(k) is a retirement savings workhorse that should be considered.