| 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 and 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. |
| 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 | Contributions can be withdrawn at any time, tax and penalty free.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. |
