What’s the Difference Between a 401(k) and a Roth IRA?

happy asian seniors walking on the beachThe most well-known retirement planning options are the 401(k) and Roth IRA, which offer different benefits. At Hawaiian Financial Federal Credit Union, we want our members in Honolulu and across the state to play an active role in their savings accumulation. As your trusted credit union we would like to offer the following information, which can help you make the right choice for your retirement.


What Is a 401(k)?
401(k)s are often provided through your workplace. You specify which investment options you prefer, then pre-tax money is taken from your paycheck and placed into a special account. When you withdraw this money upon retirement, taxes will be taken out. However, it’s presumed that your tax burden will be lower at this point since you won’t be earning the same income, thereby placing you in a lower tax bracket.

In some cases, your employer may match the amount you contribute, doubling your savings. Many people find 401(k)s far more convenient since money is automatically deposited, making it easy to build retirement savings.

What Is a Roth IRA?
Unlike 401(k)s, Roth IRAs are provided by investment firms. The money deposited into these accounts has already been taxed and usually comes directly from a checking account. The maximum contribution per year is $5,500 for people 49 and under, while people 50 and older can contribute $6,500.

There are income limits, however. A person or couple’s modified adjusted gross income must be under a certain level to make the full yearly contribution. Single people earning between $120,000 to $135,000 are only allowed to make partial contributions. For married couples, the partial contribution amount applies to the $189,000 to $199,000 income range.

Both 401(k)s and Roth IRA’s can be confusing.  Always check with your accountant, financial advisor, or a trusted source such as Hawaiian Financial FCU.  Getting more information is the start to planning right.  Invest now and enjoy the benefits later when you take advantage of our IRA certificates and other great saving opportunities.

With hundreds of millions of dollars in assets and over 50,000 members across Hawaii, Hawaiian Financial FCU is one of the leading financial institutions in the state, with a reputation of combining personalized service with technologically advanced personal banking solutions.  Learn more about our great rates and broad array of services, follow us on FacebookTwitter, and Instagram for news and updates, or call (808) 832-8700 on Oahu or toll-free at (800) 272-5255 with any questions.


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