401k Plan vs. a Roth IRA: Which Should Your Business Offer?

State governments want more workers to save for retirement, and some have passed mandates that require businesses to offer retirement savings programs as a benefit to their employees.


As part of these mandates, some states have created their own programs by using retirement savings plans known as Roth IRAs. Examples of such state programs include California’s CalSavers and Illinois’s Secure Choice. However, a Roth IRA works differently than private alternatives like the 401k retirement savings plans that some companies offer.

Are state programs a better option for your business and your employees? Which businesses benefit the most from a 401k plan?

Let’s look at the differences between a retirement 401k plan and a Roth IRA account. This will help you decide which of these services is more appropriate for you and your business.

The differences between a 401k plan and a Roth IRA

Roth IRAs (Individual Retirement Accounts) are a good alternative for some workers, but they also come with limitations that you should be aware of.

First, not all employees can save in a Roth IRA. Those who earn too much will not be able to open this type of retirement account.

According to data provided by the IRS, employees who file taxes as a single person must have a Modified Adjusted Gross Income (MAGI) of less than $129,000 for tax year 2022 in order to qualify for a Roth IRA. Similarly, married couples who file a joint return must earn less than $204,000 a year in order to contribute to a Roth IRA.

Another difference to take into consideration is the maximum annual contribution that your employees are allowed to contribute to their Roth IRAs. In 2022, contribution limits for a Roth IRA are up to $6,000 (or $7,000 for those 50 and older).

If an employee has multiple IRAs, whether Roth or Traditional, they have to be careful that their balance adds up and doesn’t exceed the legal limits.

In contrast, workers and business owners on payroll who have a 401k in 2022 can contribute up to $20,500 a year (and up to $27,000 a year for those 50 and older). This is more than three times the amount that can be contributed to a Roth IRA.

In a Finhabits 401k plan, most employees over the age of 18 may qualify, including those with the ITIN (Individual Taxpayer Identification Number). Additionally, our Safe Harbor status plans are designed to automatically pass most nondiscrimination tests required by the IRS.

As the first financial wellness platform in both English and Spanish, Finhabits offers easy-to-manage 401k plans to businesses of any size. To learn more about Finhabits 401k plans and prices, visit us at www.finhabits.com/401k or call us at 1-800-935-7214.

Finhabits explains: How does your business benefit from offering a 401k plan?


This material has been provided for informational purposes only, and is not intended to provide investment, legal or tax advice. Check with your tax advisor to determine what tax credits and tax deductions may be available for your business. Finhabits does not provide tax, legal or accounting advice.Investment advisory services offered through Finhabits Advisors LLC, an SEC registered investment adviser. Registration does not imply a certain level of skill or training. Past performance is no guarantee of future returns. There are risks involved with investing. Insurance services offered through Finhabits Insurance Services LLC, a licensed producer in certain states. Finhabits Advisors LLC is not a fiduciary to insurance products or services.​
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