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What is the difference between a 401(k) and a Roth IRA?
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A 401(k) is an employer-sponsored retirement savings plan that allows employees to save for retirement. Contributions are made pre-tax, meaning they reduce taxable income in the current year. The money grows tax deferred until it is withdrawn at retirement age or death. A Roth IRA is similar but contributions are made with after-tax dollars and withdrawals are tax free. Contributions can be withdrawn at any time without penalty.