Roth IRA vs. Roth 401(k): Experts Weigh Flexibility Against Contribution Power

Contributing to a Roth 401(k) or a Roth individual retirement account (IRA) can be a strategic way to prepare for retirement, with both options offering tax-free growth and withdrawals. While neither provides an upfront tax deduction, investors benefit from avoiding future required withdrawals, allowing more room for long-term compounding. Financial experts note that choosing between the two plans comes down to balancing contribution limits with flexibility.

Certified financial planner Jordan Whitledge, lead advisor at Donaldson Capital Management in Evansville, Indiana, described the trade-off as “power versus freedom.” He explained that Roth 401(k) accounts allow for larger contributions, while Roth IRAs offer greater flexibility. “The mistake is thinking it’s one or the other,” Whitledge said, emphasizing that savers can contribute to both types of accounts.

Dollar bills | Source: Pexels

One key advantage of Roth 401(k) contributions is the employer match, often considered “essentially free money,” according to CFP Nathan Sebesta, owner of Access Wealth Strategies in Artesia, New Mexico. Experts generally recommend contributing at least enough to capture the full employer match before directing funds to other accounts. However, Roth 401(k) plans may have fewer investment choices and higher fees compared with Roth IRAs, Sebesta noted.

Contribution limits also differ significantly. In 2025, employees can defer up to $23,500 into a Roth 401(k), with catch-up contributions raising the limit to as much as $34,750 for workers aged 60 to 63. By comparison, the Roth IRA limit is $7,000, or $8,000 for those 50 and older. Roth IRAs also come with income limits, though higher earners may use a backdoor Roth strategy to bypass restrictions.

A graph on a screen | Source: Pexels