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Differences Between a Roth 401(k) and a Roth IRA

(You can have both a Roth 401(k) account and a Roth IRA account. The contribution limits are separate.)

  Roth 401(k) Roth IRA
Maximum contribution (2011) Lesser of $16,500 or 100% of compensation Lesser of $5,000 or 100% of earned income
Catch-up contribution if age 50 or older (2011) $5,500 $1,000
Who can contribute? Any eligible employee Only taxpayers who earn less than:
Single/Head of Household:
$122,000
Married (filing jointly):
$179,000
Married (filing separately):
$10,000
Lifetime required distributions after age 70½? Yes No
Potential employer matching contribution? Yes1 No
Creditor protection in bankruptcy Unlimited At least $1,171,650 (as of April 1, 2010, all IRAs aggregated)2
Loans available? Yes, if plan permits No
Five-year waiting period for qualified distributions? Yes, from time you contribute to the plan3 Yes, from time you contribute to ANY Roth IRA
Distributions4 Upon termination of employment, age 59½, hardship, disability, and death Any reason
Qualified tax-free distributions4 59½, disability, and death 59½, disability, death, first-time homebuyer (up to $10,000)
Nonqualified distributions Pro-rata distribution of tax-free contributions and taxable earnings Tax-free contributions distributed first, then taxable earnings
Rollovers To a Roth IRA, Roth 401(k), or
Roth 403(b);
From a Roth 401(k) or
Roth 403(b)
To and from a Roth IRA;
From a Roth 401(k) or
Roth 403(b);
From a traditional IRA, 401(k), 403(b), or 457(b)5
Investment choices Limited to investments offered by employer Virtually unlimited

1 Employer contributions and earnings are taxable when distributed.

2 Amounts rolled over from an employer qualified plan or 403(b) plan, plus earnings on the amount rolled over, also have unlimited creditor protection.

3 Or from the time you contributed to a previous employer's Roth 401(k) plan, if you rolled over your balance from that plan to the current plan.

4 Depending on plan terms. Taxes and potential penalties apply to earnings paid in a nonqualified distribution.

5 Taxable conversion.