Roth IRA vs Roth 401k: Benefits and Differences Explained

Roth IRA is preferred over Roth 401k due to flexibility, lower costs, and emergency fund accessibility.

### Roth IRA vs. Roth 401k: Which One to Choose?
* 💼  Roth IRAs offer more flexibility in choosing **low-cost providers like Vanguard or Fidelity**, while 401ks may be limited by **employer choices**.
* 💰  Roth IRAs allow **penalty-free, tax-free withdrawals of contributions in emergencies**, a feature not available in Roth 401ks.
* 📊  Roth IRAs may have **lower overall costs** compared to 401ks, as they typically only incur the **internal operating expenses** of the chosen funds.
* 🔄  Both Roth IRA and Roth 401k contributions are recommended for **maximum retirement savings potential**.
* 📈 " There is an order of operations with money, and we kind of laid out some of those **differences between those two different account structures**.
* 🛠️ " It's not either or, it's **and**. You load up that Roth IRA, you still got **access**. You get to step six of the financial water of operations, you can load up the **Roth 401k too**.
* 🏦 " Plans have gotten a lot better by the way this used to be a much bigger Delta of how **bad the difference between good plans and bad plans**.

[Music] For right now, we're going to go to Stephanie's question. She said, Why do you recommend Roth IRA before Roth 401k? I've got the same low-fee index funds and trying to understand the benefit of having another account to keep track of. Oh, this is a great question though. In the fact, but look, let me. She just answered something. She gave us enough that I can give a little detail on this. We don't like to talk about this because it could work against you, but it is something you should know that makes Roth IRAs better than Roth 401ks. Um, for most people, there. Let me go through what other people, and then I'll tell you, Stephanie, while you're kind of special. Most people, the thing we like about Roth IRA is you get to choose where you put the Roth IRA because a lot of times your employer maybe is the golf buddy or a relative of the owner of the company, and maybe it's not the best plan. Plans have gotten a lot better by the

way this used to be a much bigger Delta of how bad the difference between good plans and bad plans. But still I liked with Roth Ires you could go choose a low-cost provider, the Vanguards, the Fidelities, the Schwabs of the world, whereas your employer, you didn't always have that option. But you just shared your employer is using a very low cost, so you probably one of those three I just said. You probably have that as your 401k, and you're like, why should I just do the Roth 401k? We love the Roth 401k. We're not throwing dirt at it, but that Roth IRA is going to have a break glass an emergency. You could actually pull the cash out penalty-free, um, tax-free, and that isn't a we don't love it, we don't like it, but there are times in life if you had a medical emergency or something that that four and five can kind of meld together a little bit. That's kind of a great planning opportunity that you're an escape PCH.

that you wouldn't have necessarily with the 401K. Yeah, so I think the ability to tap your basis in a Roth versus a 401k is one plus for the IRA over the 401K. Here's the other one: even if you have a really great 401k and it's super low cost, there is probably some other expense that's being borne in that 401k, whether it be third party administrator expenses, whether it be recordkeeping expenses, or whether it be expenses from an investment advisor who serves the plan. None of those things are bad; it's just 401ks have costs associated with them. There's a really good chance that your 401k has some of those costs. Where if you go to the Roth IRA, all you're going to pay, especially with the low-cost provider you said, is just the internal operating expense of whatever fund you buy. So if you go buy like the lowest cost S&P 500 Index Fund, you're paying 0.15% on that, and that's it. There are no

other fees. There are no other charges, so there's a chance the Roth IRA might be a little bit less expensive than the Roth 401k, but this is not a hill that we're going to die on 'cause we love both of them. Well, it's also not an either or, it's an and, because what I love is that the cool thing is you load up that Roth IRA, you still got access. You get to step six of the financial water of operations, you can load up the Roth 401k too. I mean, that's why it's a really cool. It's not either or, it's and. But we gave you why, you know, there is an order of operations just like math has an order of operation with pimos. There's an order of operation with money, and we kind of laid out some of those differences between those two different account structures.

Why Do You Recommend Roth IRAs Over Roth 401(k)s?

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The Benefits of Choosing a Roth IRA Over a Roth 401k

Roth IRAs allow for more flexibility in choosing low-cost providers compared to Roth 401ks.

One special advantage of Roth IRAs is the ability to withdraw cash penalty-free and tax-free in case of emergencies, which is not possible with Roth 401ks.

This flexibility can provide a great planning opportunity for unexpected financial needs.

Advantages of Tapping into an IRA Over a 401K

Tapping into the basis in a Roth IRA provides more flexibility compared to a 401K.

Roth IRAs generally have lower associated costs than 401Ks, with the potential for minimal expenses when investing in low-cost funds.

This difference in cost structure makes Roth IRAs a potentially more cost-effective option.

The Roth IRA may be slightly less expensive than the Roth 401k due to fewer fees.

Both accounts can be used in conjunction, offering a strategic approach to saving for retirement.

Understanding the differences in their structures and benefits is crucial in following the financial order of operations.