Function

• A Roth IRA is not sponsored by an employer, but you do need to have earned income to contribute to the plan. You can only contribute earned income, such as money from wages or self-employment income, to a Roth IRA. You cannot contribute unearned income like interest or dividends. As long as you follow the rules set by the IRS, you can withdraw the money in your Roth IRA tax-free, starting at age 59 1/2. This is different from a 401k or 403b, which are only tax-deferred, meaning you pay taxes on qualified withdrawals as regular income.
  
  

Contribution Limits

• As of the date of publication, you can contribute up to $5,000 of your earned income to a Roth IRA if you are 49 years of age or younger. If you are 50 years of age or older, you can contribute an extra $1,000 to your Roth, for a total of $6,000. It is important to check these contribution limits each year, since they are subject to change. If you have access to a 401k or 403b plan, you can contribute up to $16,500 to the plan, plus an extra $5,500 if you are 50 years of age or older.
  
  

Taxation

• Employer-based retirement programs like 401k and 403b plans are different from Roth IRA accounts, both in the way they are funded and the way they are administered. With a 401k or 403b, you contribute through payroll deduction, and the money you contribute is deducted from your taxable income. With a Roth IRA you contribute after-tax income, and that contribution does not reduce your taxes or your taxable income. You must make your Roth IRA contribution on your own, through a bank, brokerage firm or mutual fund company. Your employer is not involved in your Roth IRA and does not have any part in controlling the funds.
  
  

Combining Accounts

• Both employer-based programs and Roth IRA accounts are excellent ways to save for retirement, and you can combine both plans to maximize your short-term and long-term tax savings. One popular strategy is to put enough into the employer-based plan to get the full matching funds, then concentrate on putting the maximum contribution into your Roth IRA. If you still have money to invest, you can increase the percentage going into your 401k or 403b plan.
  
  

Income Guidelines

• If you are a high earner, you may not be able to contribute to a Roth IRA, but you can still contribute to an employer-based plan like a 401k or 403b. For 2011, Roth eligibility for single filers starts to phase out at $107,000 in adjusted gross income and phases out completely above $122,000 in earnings. For married taxpayers, the phaseout begins at $169,000 in adjusted gross income and phases out completely at $179,000 in earnings.