I Absolutely Prefer a Roth IRA to a 401k for Retirement Savings. Here's Why.

I’d argue that there’s no such thing as a “bad” retirement account. Any account that helps you financially prepare for retirement and gives you a tax break while doing it is worthwhile. That said, different retirement accounts offer different benefits, so it’s OK to say that you prefer one over another.

A 401(k) is the most popular retirement account (by far) and is often synonymous with retirement savings, but I personally prefer a Roth IRA. It may not be foolproof, but it has a few benefits that make it an excellent option for those eligible to contribute.

Image source: Getty Images.

A tax break that could save you thousands

The main appeal of a retirement account is the tax break you receive for contributing to it. In a Roth IRA’s case, it has a unique tax break: tax-free withdrawals in retirement.

Granted, the money you contribute to a Roth IRA has already been taxed, but it’s hard to overstate just how beneficial being able to take tax-free withdrawals in retirement is. In many cases, it could easily save you thousands of dollars.

As an example, let’s assume you were able to accumulate $100,000 in your Roth IRA. When you begin making withdrawals in retirement, the full $100,000 would be yours, tax-free.

If the $100,000 were in a 401(k), you’d owe taxes on any amount you withdraw. This could be $1,200 to $2,200 in taxes owed if you’re in the 12% or 22% tax bracket. And because of the required minimum distributions, you must begin making withdrawals at age 73.

Roth IRAs give you more freedom to tailor your investments

One of my biggest complaints with a 401(k) is the limited investment options. Your plan administrator provides you with a set number of investments to choose from, and that’s it. Many plans have begun to offer more options, but they’re limited nonetheless.

For some, the limited investment options are ideal because they simplify the process. For others, these limitations may mean they can’t tailor their investments to fit their personal situation. People have different risk tolerances, time horizons, and financial goals, and their investments should match that.

With a Roth IRA, it’s much easier to accomplish because you can invest in virtually any asset that you could in a regular brokerage account (with a few exceptions).

Want Microsoft stock in your 401(k)? It’s probably not an option if you’re not an employee there. Want to buy a niche ETF in an industry you believe has a promising future? It’s a no-go if your plan doesn’t offer it. Want specific dividend stocks for guaranteed income? Good luck.

A Roth IRA allows you to do all of the above.

A Roth IRA should be one part of your retirement savings strategy

Two of the knocks against a Roth IRA are the relatively low contribution limit and the income limit for eligibility. In 2025, the most you can contribute to a Roth IRA (or traditional IRA) is $7,000. If you’re 50 or older, you can add another $1,000 catch-up contribution, but even then, that’s a drop in the bucket when you’re talking retirement savings.

Regarding income limits, here is the most you can earn and still be eligible to contribute to a Roth IRA. (Note the low limit for married filing separately, which is designed to encourage couples to file jointly.)

Data source: IRS.

These limits are why it’s best to take advantage of a Roth IRA while you can, as you may not always be eligible. Even if you eventually become ineligible to contribute, your investments will continue to grow and compound until you make withdrawals in retirement.

Given some of the limitations (particularly the contribution limit), a Roth IRA is best used as a supplement to other retirement income sources, such as a 401(k). You don’t have to pick one or the other. Ideally, you can take advantage of both if you have access to a 401(k).