Tax-Free Retirement Options

Posted on: September 15, 2020

By Matt Andersen, CPA, Found of MD Andersen CPA, PA

Retirement should be a time to relax and do the things that you enjoy. That does not mean that you should have added stress now as a result of trying to plan for your future. If you are interested in the benefits of “tax-free” retirement options, MD Andersen, CPA, PA is happy to help you gain a better understanding of what choices are available to you.

What is a ROTH?

The ROTH IRA and ROTH 401(k) are the two options you have when pursuing a tax-free retirement account. Both accounts are funded through after-tax dollars, as the money has already been taxed as income to the recipient. That money is not taxed again once it is received. Though not completely tax-free, it is free of taxes upon withdrawal after five years.  

ROTH IRA vs. ROTH 401(k)

The ROTH IRA and ROTH 401(k) are both funded with after-tax contributions, so does it really matter which one you choose? There are a couple of factors that could help you to decide.

What Is Required?

For a ROTH IRA, there is no prerequisite account. For the ROTH 401(k) you must have a traditional 401(k) account. The ROTH IRA does not allow for employer contributions or loans on account as it is entirely self-funded. The ROTH 401(k), however, does allow employer contributions, but they must be deposited to the traditional account, not the ROTH account. Unlike the ROTH IRA, the ROTH 401(k) also does allow for loans on account.

Over The Limit

A ROTH IRA does have an income limit. For an individual, that limit is $133,000, and for a married couple, it increases to $189,000. For individuals whose income exceeds this limit, you should opt instead for the ROTH 401(k). Another limitation to consider is the contribution limit. If you are under 50 years old, a ROTH IRA allows contributions up to $5,500, whereas the ROTH 401(k) allows for up to $18,500. If you are over the age of 50 the limit is raised to $6,500 for the ROTH IRA or $24,500 for the ROTH 401(k). 

Age Is Everything

For both the ROTH IRA and the ROTH 401(k), the account must exist for five years before any contributions can be withdrawn without penalty. Keep in mind this only refers to contributions you made – any investment income you attempt to withdraw will be penalized if you are under the age of 59 and a half years old. Once the account holder turns 59 and a half, the penalty fees are lifted, and you are able to withdraw from the account as needed.

Choices, Choices

 Everyone’s situation is different, that is why there are so many options. If you are still unsure about which option is right for you, let us help guide you in the right direction! Reach out to MD Andersen, CPA, PA today so we can get you retirement-ready.



Matt Andersen, CPA loves analyzing data, people, and businesses. He is passionate about helping entrepreneurial-minded clients achieve their goals, keep more money in their pockets, and live a higher quality of life. In addition to tax and accounting services, Matt provides one-on-one coaching for various topics including lifestyle entrepreneurship, tax planning, financial management, and new business creation.

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