Function

• A Roth IRA and a 401(k) offer alternative routes to saving money. With a 401(k), your employer deducts a percentage of your paycheck and places it in the account, where it will be invested and hopefully earn interest; many companies will match some of the money you put in, at no cost to you. With a Roth IRA, you put the money in yourself.
  
  

Features

• If you put money into a 401(k), you don't pay taxes on it until you withdraw the money. With a Roth IRA, you pay taxes on the money you put in, but when you take the money out, it's tax-free income. The IRS limits the amount you can put into either account in a given year. You can only put money into a Roth IRA if you've received compensation (wages from your employer, money you've made through self-employment or alimony) in that year.
  
  

Considerations

• If you choose to have both a Roth IRA and a 401(k) plan, you have to decide which one should receive most of your retirement funds. Charles Schwab recommends putting it into the 401(k) up to the limit the IRS allows. Not only will your contributions be tax-free, but if your employer is matching part of your contribution, that's extra money for retirement that isn't coming out of your pocket.
  
  

Time Frame

• One advantage a Roth has over a 401(k) is the ease of withdrawal. If you own a 401(k), you can't withdraw money before you reach 59 1/2 without a penalty, except for "hardship" situations such as medical expenses or buying a first home, the IRS states; when you hit 70 1/2, you must start making minimum annual withdrawals or you'll face another penalty. With a Roth IRA, you can withdraw your contributions at any time, but there are restrictions on when you can take out earnings.
  
  

Options

• Some employers offer a hybrid, a Roth 401(k) employer-based plan where you pay taxes on money you put in, but not on withdrawals. As of 2010, the IRS will allow employees with 401(k) accounts to roll them over into a Roth 401(k). You'll have to pay taxes on the money in your old account when you convert it, but if tax-free withdrawals work better with your retirement plan, it may be worth considering.