Roth IRA vs Traditional IRA vs 401(k) vs Taxable Account: Comparison Table
Account Types Compared (US)
Where you hold an investment changes how it's taxed. Here is how the four most common US account types compare.
| Taxable brokerage | Traditional IRA | Roth IRA | 401(k) | |
|---|---|---|---|---|
| Money goes in | After tax | Often pre-tax (deductible) | After tax | Pre-tax (Roth 401(k) option at many plans) |
| Growth | Taxed yearly on dividends and sales | Tax-deferred | Tax-free | Tax-deferred |
| Withdrawals | Anytime | Taxed as income; early ones may have a penalty | Contributions anytime; earnings tax-free after rules are met | Taxed as income; early ones may have a penalty |
| Yearly limit | None | Set by the IRS each year | Set by the IRS; income limits apply | Set by the IRS; higher than IRAs |
| Dividends | Qualified or ordinary rates each year | No yearly tax | No yearly tax | No yearly tax |
| Options trading | Usually all levels with approval | Often covered calls and cash-secured puts; no naked options | Same as Traditional IRA | Rarely; depends on the plan |
| Losses | Can offset gains | Can't be deducted | Can't be deducted | Can't be deducted |
Where covered calls and dividends fit
- Covered call premium in a taxable account is usually a short-term gain, taxed like income. In an IRA it isn't taxed yearly.
- Broker option levels in IRAs are limited because you can't borrow on margin there.
- Look up this year's contribution limits on irs.gov before you contribute.