What are the main differences between a 401K and a Roth IRA?

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The main difference between a 401k and a Roth IRA is the way they are taxed. Contributions to a 401K plan are made with pre-tax dollars, meaning that taxes on contributions are deferred until the funds are withdrawn in retirement. This allows investors to save more money since taxes will not be taken out until later. On the other hand, contributions to a Roth IRA are made with after-tax dollars; this means that the money contributed has already been taxed and can grow tax free over time, allowing for potentially greater gains over longer periods of time.

In addition, 401K plans usually have higher contribution limits than Roth IRAs do—typically up to $19000 or more per year compared to only $6000 for a single person under 50 years old contributing to an IRA. Furthermore, 401Ks often come with employer matches which can significantly increase savings over time if their employers offer this type of benefit program; whereas most individuals do not receive any matching contributions when investing in an IRA. Finally, different withdrawal rules apply depending on which type of account you opt for; withdrawals from a Roth IRA prior to age 59 and ½ incur penalties whereas those from a 401K may not depending on certain circumstances such as financial hardship or disability.