| Tax treatment of contributions |
- Contributions made with pre-tax dollars, which reduces your taxable income on a dollar-for-dollar basis. Some employers offer a Roth 401(k) option, funded with after-tax dollars.
- Investments in the account grow tax-deferred. If Roth 401(k), investments grow tax-free.
| - Contributions are deductible. Higher income combined with participation in a workplace retirement account (for you or your spouse, if married filing jointly) may reduce or eliminate deduction.
- Investments in the account grow tax-deferred.
| - Contributions are not deductible.
- Investments in the account grow tax-free.
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| Investment options | A pre-selected list of investments, mainly mutual funds. Some plans have a brokerage option with access to investments outside of the plan. | Any investment available through your account provider (stocks, bonds, mutual funds, etc.). |
| Taxes on withdrawals in retirement (after age 59 ½) | Distributions are taxed as ordinary income. If Roth 401(k), distributions are tax-free. | Distributions are taxed as ordinary income. | Distributions are tax-free as long as the account has been open for at least five years. |
| Early withdrawal rules (before age 59 ½) | Unless you meet an exception, early withdrawals of contributions and earnings are taxed and subject to a 10% penalty. See more on 401(k) early withdrawal rules. | Unless you meet an exception, early withdrawals of contributions and earnings are taxed and subject to a 10% penalty. See more on traditional IRA withdrawal rules. | - Contributions can be withdrawn at any time, tax and penalty free.
- Unless you meet an exception, early withdrawals of earnings may be subject to a 10% penalty and income taxes. See the Roth IRA early withdrawal rules.
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