Roth IRA vs. 401(k) & 403(b): Which Retirement Plan is Right for You?

When it comes to saving for retirement, two popular vehicles are the 401(k) (nonprofit workers, teachers, government workers typically have a 403(b)) and an Individual Retirement Account (IRA).

However, when faced with the choice between the two of them, how do you know which is best for your situation?

PNC compares the two areas such as eligibility to contribute, annual contribution limits, access to assets during employment and taxability of withdrawals.

Table 1: Comparison of Plan Types

	401(k)/403(b)	Individual Retirement Account (IRA)
Eligibility to contribute	Your employer may offer a plan; participation is subject to plan rules.	Traditional You or your spouse have earned income. Deductible if: you (and, if married, your spouse) are not covered by a retirement plan at work, or you are not covered by a retirement plan at work but your spouse is covered by a retirement plan at work and, for tax purposes, you are married filing jointly with Modified Adjusted Gross Income (MAGI)^[1] < $228,000 (starts phasing out at $218,000), or you are covered by an employer-sponsored retirement plan and, for tax purposes, you are: Single with MAGI < $83,000 (starts phasing out at $73,000), or Married filing jointly with MAGI < $136,000 (start phasing out at $116,000) Married filing separately with MAGI < $10,000 Roth You (or your spouse, if married) have earned income and, for tax purposes, are: Single with MAGI < $153,000 (starts phasing out at $138,000) Married filing jointly with MAGI < $228,000 (starts phasing out at $218,000) Married filing separately with MAGI < $10,000
Annual contribution limit If eligible, you can contribute to both a 401(k)/403(b) plan and an IRA—the limits apply separately.	$22,500 or if age 50 or older $30,000 (you may contribute up to the lesser of these stated limits or 100% of your compensation/earned income for the year).	$6,500 or if age 50 or older $7,500 (you may contribute up to the lesser of these stated limits or 100% of your compensation/earned income for the year).
Access to assets during employment	Many plans offer hardship withdrawals; some plans offer in-service withdrawals after age 59½. Many plans also offer loans, which are not subject to taxes or penalties (unless you don’t pay the loan back). All access to your balance is subject to a particular plan’s rules.	You can withdraw any amount at any time. No loan provisions. Taxes and penalties may apply.
Taxability of withdrawals	Traditional Entire withdrawal subject to income tax, plus 10% penalty if taken before age 59½ (with some exceptions). Roth Qualified withdrawal:^[2] Entire withdrawal tax free. Non-qualified withdrawal: Contributions: not subject to either tax or penalty. Gains: subject to income tax, plus 10% penalty if taken before age 59½ (with some exceptions). Withdrawals are considered a combination of contributions and gains (that is, you cannot just withdraw contributions).	Traditional Entire withdrawal subject to income tax, plus 10% penalty if taken before age 59½ (with some exceptions). If after tax contributions were made to the IRA, the IRA has basis. If the IRA has basis, a portion of each distribution will be a return of "investment in the contract" and not subject to tax. Roth Qualified withdrawal:^[2] Entire withdrawal tax free. Non-qualified withdrawals: Contributions: not subject to either tax or penalty. Gains: subject to income tax, plus 10% penalty if taken before age 59½ (with some exceptions). Withdrawals are considered to come from contributions first, then gains.
Employer Matching Contribution	Subject to plan rules.	None
Vesting (your right to keep contributions if you leave the company)	All the money you contribute is always vested. A 401(k)/403(b) plan can require you to remain with the employer sponsoring the plan for a certain amount of time before you may keep any amounts contributed by your employer.	All the money in an IRA is always vested.
Required Minimum Distributions (RMDs)	Yes^[3] Once you leave your employer, you may roll your Roth 401(k)/403(b) balance into a Roth IRA, which does not require lifetime RMDs.	Traditional: Yes at age 73^[4] Roth: No^[5]

For more information, please contact your PNC Private Bank advisor.

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Important Legal Disclosures and Information

1. Modified Adjusted Gross Income (MAGI) is Adjusted Gross Income with some of the items originally subtracted from gross income added back, including the IRA deduction, the student loan interest deduction, foreign earned income and housing exclusions, foreign housing deduction, excluded and savings bond interest, and excluded employer adoption benefits. See, IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

2. Over age 59½ and account open at least five years.

3. With some exceptions, RMDs are not required from 401(k)/403(b) plans if the participant is still employed by the company after reaching the age when RMDs would otherwise be required.

4. Age for RMDs is 70½ if you were born before July 1, 1949 and age 72 if you were born on or after July 1, 1949, and age 73 if you reach age 72 after December 31, 2022.

5. No RMDs are required from your Roth IRAs during your lifetime. Different rules apply to your beneficiaries after your death.

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Comparing 401(k)/403(b) Plans with IRAs

Important Legal Disclosures and Information