human
Can you explain the difference between a 401k, IRA, or Roth IRA?
assistant
A 401(k) is an employer-sponsored retirement savings plan that allows employees to save pre-tax dollars. Contributions are made through salary deductions and employers can match contributions up to certain limits. The money saved in a 401(k) accumulates tax deferred until it is withdrawn, at which point taxes will be due on any withdrawals. An Individual Retirement Account (IRA) is similar to a 401(k), but it is funded solely by the individual. Contributions to an IRA are not subject to income tax and withdrawals from an IRA are typically taxed at lower rates than those taken from a 401(k). Finally, a Roth IRA is a type of IRA where all contributions are made with after-tax dollars, meaning there are no current tax benefits associated with the account. However, qualified withdrawals from a Roth IRA are generally free from federal income tax.