Roth IRA vs 401(k) Explained: Which Makes You Richer?

About this Video

• Video Title: Roth IRA vs 401(k) Explained: Which Makes You Richer?
• Channel: Austin Williams
• Speakers: Austin Williams
• Duration: 00:14:22

Introduction

This video explains the differences between Roth IRAs and 401(k)s, helping viewers understand how each account works regarding taxes and which might be better suited to their financial goals. The video covers the basics of each account, tax implications, pros and cons, and how to get started. A personal example of the speaker's own Roth IRA and 401(k) is also shown.

Key Takeaways

• Roth IRA: Contributions are made after taxes, but withdrawals in retirement are tax-free. There are contribution and income limits. The speaker considers it the best option for most due to tax-free growth.
• 401(k): Contributions are made before taxes, lowering taxable income. Withdrawals in retirement are taxed. There's often an employer match (free money), but investment options might be limited by the employer's provider. There are contribution limits but no income limits.
• Tax Implications: Roth IRA taxes are paid upfront, while 401(k) taxes are deferred until retirement.
• Contribution Limits: Both accounts have annual contribution limits set by the IRS. These limits vary depending on age.
• Strategic Approach: The video suggests maximizing employer 401(k) matching contributions first, then maxing out Roth IRA contributions, and finally, if possible, maxing out 401(k) contributions. Consult a tax professional for personalized advice.