401(k) (regular and Roth versions)
Traditional IRA
Roth IRA
2019 contribution limit
$19,000 for those under age 50; $25,000 for those age 50 and above. $6,000 as a combined IRA limit; $7,000 for those age 50 and above.
Setup and funding
Employee enrolls in plan set up by employer. Funded via automated payroll deduction. Set up and funded by individual through a financial institution.
Key pros
  • Employer match, if offered.
  • High contribution limit.
  • Eligibility is not limited by income.
  • Large investment selection.
  • If deductible, contributions lower taxable income in the year they are made.
  • Qualified withdrawals in retirement are tax-free.
  • Contributions can be withdrawn at any time.
  • Key cons
  • No control over plan and investment costs.
  • Limited investment choice.
  • Distributions in retirement are taxed as ordinary income, unless a Roth 401(k).
  • Contribution limits are lower than a 401(k).
  • Deductions may be phased out.
  • Distributions in retirement are taxed as ordinary income.
  • Contribution limits are lower than a 401(k).
  • No immediate tax benefit for contributing.
  • Ability to contribute is phased out at higher incomes.
  • Early withdrawal rules
    Unless you meet an exception, early withdrawals of contributions and earnings to a regular 401(k) are taxed (in a Roth 401(k), only earnings are taxed) and subject to a 10% penalty.Unless you meet an exception, early withdrawals of contributions and earnings are taxed and subject to a 10% penalty.
  • Contributions can be withdrawn at any time, tax- and penalty-free.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.