Pros and Cons of 401(k)s, IRAs and Roth IRAs
by S. Wade Hansen

Pros and Cons of 401(k)s and IRAs vs. Roth IRAs

 While the most popular retirement accounts---401(k)s, IRAs and Roth IRAs---may have a few differences, they are actually quite similar. Pros and Cons of 401(k)s, IRAs and Roth IRAs

However, each account does have distinct advantages and disadvantages.

Take a look at the pros and the cons listed below to get an idea of the strengths and weaknesses of each account type:

[Learn more about each type of retirement plan by clicking on the links.]
Retirement Plan Pros Cons

401(k)

- Pre-tax contributions
- Money grows tax deferred
- Employer contributions
- Can take loans against your assets

 - Taxable withdrawals
- High management fees
- Restricted investment choices
- 10% penalty on early withdrawals
- Mandatory withdrawals begin at age 70 1/2

Individual Retirement Plan
(IRA)

- Pre-tax contributions
- Money grows tax deferred
- Low/No management fees
- Invest in virtually any asset

 - Taxable withdrawals
- 10% penalty on early withdrawals
- Mandatory withdrawals begin at age 70 1/2

Roth Individual Retirement Plan
(Roth IRA)

- Tax-free withdrawals
- Money grows tax deferred
- Low/No management fees
- Invest in virtually any asset
- No mandatory withdrawals

 - Contributions made after taxes
- 10% penalty on early withdrawals

 

   
 


Here are a few things to consider when evaluating these different plans:

- If you have an employer that offers to match your investments, consider contributing enough to get your employer match.

- If you are in a lower tax bracket now, consider a Roth IRA over a traditional IRA.

- If you are worried about taxes rising in the future, consider a Roth IRA over a traditional IRA.


NEXT: Learn how to Roll Over Your 401(k).

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