When it comes to boosting your retirement accounts, the IRS has sent us help in the form of tax-advantaged accounts like a 401(k) and an IRA. If we don’t take full advantage of these money-making tools, we are turning away help when we need it the most.

In this article, I will describe the different features of Roth and traditional 401(k) and Roth and deductible IRA accounts. There are different types of 401(k)s and IRAs, and we’ll look at the qualification and contribution limits, withdrawal restrictions, and other features. I’ll also link to some IRS publications that provide detailed descriptions of these accounts.

It’s important to note that 401(k) and IRA retirement accounts involve a lot of rules and regulations. Getting them wrong could have a major impact on your retirement savings. I am not a tax or retirement account specialist. What follows is my best understanding of the rules as they exist now, but you should consult your plan administrator or other retirement account specialist before making any decisions.


Named after the 1978 IRS tax code provision implementing this retirement account, 401(k)s are offered by employers to certain covered employees. Both the traditional 401(k) and the Roth 401(k) allow an employee to set aside a portion of their income for retirement. The plans also permit an employer to make matching contributions if it so desires. It’s important to note that the tax advantages of a traditional 401(k) are different than those of a Roth 401(k).

Traditional 401(k)

In a traditional 401(k), money contributed to the retirement account is not taxed at the time of the contribution. Instead, the pre-tax contributions and any earnings are not taxed until you withdraw the money from the account. There are three important contribution limits: (1) how much an individual may contribute; (2) how much an employer can match; (3) and the catch-up contribution limit.

For 2023, the most an employee may contribute is $22,500. This is adjusted upward based on inflation and the limit has increased from $20,500 in 2022. In addition, those 50 and older may make a “catch-up” contribution of up to $7,500 in 2023. As with the regular contribution, the “catch-up” contribution is also adjusted upward based on inflation. In 2022, it was $6,500.

In addition, employers may offer matching contributions. An employer’s match does not count toward an individual’s contribution limits. In other words, if your employer matches your contributions dollar for dollar up to 6% of your salary, these matching contributions do not count toward the $22,500 2023 limit. In 2023, the total contribution to a 401k (including the employer match) cannot exceed $66,000. Thus, if you contribute $22,500, your employer can contribute up to $43,500 in 2023.

Minimum Required Distribution (MRD): The official distribution age for 401(k) funds is 59 1/2. Subject to certain exceptions described below, withdrawing money earlier will result in a 10% penalty in addition to the income taxes you’ll have to pay. In addition, the IRS requires certain minimum distributions. Failure to abide by these rules can result in a 50% penalty tax on the portion that should have been withdrawn, so understanding the MRD is important for retirees. The MRD rules are described in an IRS 401k Resource Guide, but here are the basics. The required beginning date for distributions is April 1 of the first year after the latter of the following years:

  • Calendar year in which the participant reaches age 70 1/2.
  • Calendar year in which the participant retires.

A plan may, however, require that the participant begin receiving distributions by April 1 of the year after reaching age 70 1/2, even if the participant has not retired.

If the participant is a 5% owner of the employer maintaining the plan, then the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reaches age 70 1/2. You can find additional information from the IRS in Publication 575.

401(k) Hardship Withdrawals: A 401(k) plan may, but is not required to, provide for hardship distributions. If the 401(k) plan offers hardship distributions, then participants who qualify can withdrawal money from a 401(k) before reaching 59 1/2. For a withdrawal to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee’s spouse or dependent. Whether a financial need is immediate and heavy will depend on the facts and circumstances of each situation, but the IRS has defined certain expenses as qualifying under this definition:

  • certain medical expenses
  • costs relating to the purchase of a principal residence
  • tuition and related educational fees and expenses
  • payments necessary to prevent eviction from, or foreclosure on, a principal residence
  • burial or funeral expenses; and
  • certain expenses for the repair of damage to the employee’s principal residence

It’s important to note that a distribution is not considered a hardship if an employee has other resources that can meet the financial need. Here’s how the IRS describes this point:

A hardship withdrawal is subject to a 10% penalty plus tax. There are certain circumstances when a penalty-free withdrawal can be made, which include withdrawals:

  • Made to a beneficiary (or to the estate of the participant) on or after the death of the participant.
  • Made because the participant has a qualifying disability.
  • Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59 1/2, whichever is the longer period.)
  • Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.
  • Made to an alternate payee under a qualified domestic relations order (QDRO).
  • Made to a participant for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the participant itemizes deductions).
  • Timely made to reduce excess contributions.
  • Timely made to reduce excess employee or matching employer contributions.
  • Timely made to reduce excess elective deferrals.
  • Made because of an IRS levy on the plan., or
  • Made on account of certain disasters for which IRS relief has been granted.

You can read more about early withdrawals in the IRS 401(k) Resource Guide.

401(k) Loans: Most 401(k) plans permit employees to borrow from their own retirement account. Typically, an individual can borrow up to 50% of the account balance or $50,000, whichever is less. Although interest rates vary from plan to plan, most charge prime plus 1 or 2 percent. The interest you pay goes back into your 401(k) account. Before borrowing from your 401(k), there are several factors to consider:

  • Some plans limit borrowing to just once every 12 months.
  • Interest is paid back into your 401(k) account
  • Most loans are paid back over five years
  • If you fail to repay the loan, you could be hit with a 10% early withdrawal penalty plus income tax
  • If you leave your job, you’ll have to repay the loan in full (normally within 60 days) or you could be assessed penalties and taxes

Roth 401(k)

The Roth 401(k) was introduced with the Economic Growth and Tax Relief Reconciliation Act of 2001. This Act allowed employers to start offering these plans on January 1, 2006. According to a recent survey, 12% of employers offer a Roth 401(k), although more are expected to implement Roth 401(k) plans in the near future. Like a Roth IRA (described below), a Roth 401(k) accepts after-tax contributions only. Investment earnings grow tax-free, and withdrawals during retirement are also not subject to taxation. Unlike a Roth IRA, however, a Roth 401(k) does not have any income limitations. If your employer offers a 401(k), you can participate regardless of how much you make.

Roth 401(k)s are subject to the same contribution limits and 50+ catch-up limits as a traditional 401(k). These contribution limitations apply across all of your 401(k) plans. If you contribute to multiple 401(k)s, whether traditional, Roth, or both, your total contributions cannot exceed $22,500 for 2023 and 50+ catch-up of $7,500. In addition, restrictions apply to early withdrawals from Roth 401(k) plans. If a hardship distribution is made, the participant will be charged a 10% penalty and assessed taxes on the portion of the withdrawal attributed to earnings. Because participants in a Roth 401(k) have already paid tax on the contributions, no tax is paid on the contribution portion of the withdrawal.

Finally, if your employer matches your Roth 401(k) contributions, these matching funds are placed in a traditional, pre-tax 401(k). This means that you will have two 401(k) plans: a Roth 401(k) for your contributions, and a traditional 401(k) for your employer’s matching contributions.

Traditional versus Roth 401(k)

A lot has been written on which 401(k) is best, traditional or Roth. The consensus almost always favors the Roth 401(k), particularly if the tax savings from the traditional 401(k) are not invested in an IRA or a taxable account. One of the unknowns, of course, is what our tax rates will be at retirement. If your tax rate today is a lot higher than it will be in retirement, a traditional 401(k) may be best.

It’s worth noting that participants can make contributions to both a traditional and Roth 401(k) so long as total contributions do not exceed the IRS limit. That means you can hedge your bet about future tax rates if you’d like by splitting your retirement contributions between traditional and Roth accounts (on a 50-50 or some other basis).


Individual Retirement Arrangements (IRAs) are retirement accounts that are not administered by employers. Subject to certain qualifications described below, an individual can open an IRA to enjoy tax-advantaged savings for retirement. Like 401(k) plans, IRAs come in both traditional and Roth flavors. While you may qualify to open an IRA, you may not qualify to deduct your contributions. Certain limits to deductibility come into play depending on your income and whether you have access to a retirement plan at work. Here are the details.

Traditional IRA

Qualifications: Anybody can participate in a traditional IRA who is under 70 1/2 years of age and has earned income (or whose spouse has earned income if they file joint returns).

Contribution Limits: For 2023 the limit is $6,500 (plus an additional $1,000 “catch-up” contribution for those age 50 and older).

Deducting Contributions: If you or your spouse is covered by a retirement plan at work, you may not be able to deduct some or even all of your IRA contributions. If you are covered by a plan at work, the following indicates whether and to what extent you can take a deduction based on your AGI:

  • Singles and heads of household: full deduction for less than $73,000, partial deduction for between $73,000 and $83,000, no deduction for greater than $83,000
  • Married couples filing jointly: full deduction for less than $116,000, partial deduction for between $116,000 and $136,000, no deduction for greater than $136,000
  • Married couples filing separately: partial deduction for less than $10,000 and no deduction for greater than $10,000

Note that these phase-out limits can change from year to year. You can find more information directly from the IRS in Publication 590.

Roth IRA

A Roth IRA is similar to a Roth 401(k). Contributions are with after-tax dollars, and distributions during retirement are free from tax. One of the most significant differences between a Roth IRA and a Roth 401(k) is that your income can disqualify you from opening a Roth IRA. According to the IRS, here are the current limits:

Tax Year Single/Head of Household Filers Married Filing Jointly/Qualified Widow(er) Contributions Married Filing Separately*
2023 $138,000 – $153,000 $218,000 – $228,000 $0 – $10,000
2022 $129,000 – $144,000 $204,000 – $214,000 $0 – $10,000
2021 $125,000 – $140,000 $198,000 – $208,000 $0 – $10,000
2020 $124,000 – $139,000 $196,000 – $206,000 $0 – $10,000
2019 $122,000 – $137,000 $193,000 – $203,000 $0 – $10,000
2018 $120,000 – $135,000 $189,000 – $199,000 $0 – $10,000
2017 $118,00 – $133,000 $186,000 – $196,000 $0 – $10,000
2016 $117,000 – $132,000 $184,000 – $194,000 $0 – $10,000
2015 $116,000 – $131,000 $183,000 – $193,000 $0 – $10,000
2014 $114,000 – $129,000 $181,000 – $191,000 $0 – $10,000
2013 $112,000 – $127,000 $178,000 – $188,000 $0 – $10,000
2012 $110,000 – $125,000 $173,000 – $183,000 $0 – $10,000
2011 $107,000 – $122,000 $169,000 – $179,000 $0 – $10,000
2010 $105,000 – $120,000 $167,000 – $177,000 $0 – $10,000

As I noted at the start, the rules for 401(k) and IRA retirement accounts can be involved, and they change and are adjusted regularly. So before you make any decisions related to these accounts, you should consult with your plan administrator or other retirement account specialist. If you’re interested in further reading, check out IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out.

How to Manage Your Retirement Accounts

There is no shortage of ways to manage your retirement accounts. Some people do so without any outside guidance, while others hand the entire process over to a financial professional. Along with these options, the use of robo-advisors is on the rise.

There’s more to a retirement account than adding money and hoping for the best. An online financial advisor may be just what you need.


  • Rob Berger

    Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at RobBerger.com.