Aaron Heienickle

This question gets framed as a choice, and for most people it is not one. A Roth IRA and a 401(k) do different jobs, and the usual answer is that you should be funding both — in a particular order.

If you have changed jobs between the private sector and a school, hospital, or nonprofit, you have probably noticed the retirement plan changed name but not much else.

An IRA and a 401(k) get treated as interchangeable, and they are not. Both are tax-advantaged retirement accounts, both let your money grow without annual tax drag, and both penalise early withdrawals.

If you work for a government agency, a public university, or a nonprofit, your retirement plan may be a 401(a) rather than the 401(k) everyone talks about.

When you leave a job with a 401(k) behind, the choice of where to move it gets described in language that makes three similar things sound like three different products. They are not, quite.

If you have been pitched an indexed universal life policy as a retirement plan, you have encountered one of the most aggressively marketed products in personal finance.

If you run a small business and have decided to offer a retirement plan, the practical choice usually comes down to these two.

These two accounts share the same core promise: pay tax on the money now, and qualified withdrawals in retirement come out tax-free.

Most workplace plans now offer both, and the choice sits in a form you filled out once and probably never revisited.

These two accounts are often presented as alternatives, which is misleading. They solve different problems. A Roth IRA is a retirement vehicle with a tax advantage and rules attached.