Fortune senior reporter Megan Leonhardt explains what you need to know about common retirement plans.

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When it comes to planning for retirement, one of the most commonly debated options is whether to choose a 401(k) or a Roth IRA. Both retirement plans offer distinct benefits and drawbacks, and understanding the differences between them is crucial for making the best decision for your financial future.

401(k) plans are typically offered by employers, providing workers with the opportunity to save pre-tax income for retirement. This means that the money contributed to a 401(k) is taken out of your paycheck before taxes, reducing your taxable income for the year. Additionally, many employers offer matching contributions, which essentially means they will match a certain percentage of your contributions to your 401(k).

One of the major benefits of a 401(k) is the higher contribution limit. In 2021, individuals can contribute up to $19,500 per year to their 401(k) plan, with an additional $6,500 contribution allowed for those over the age of 50. This higher contribution limit can be especially advantageous for those who are looking to maximize their retirement savings.

However, one of the drawbacks of a 401(k) is that the money contributed is taxed upon withdrawal during retirement. This means that the money you save in a 401(k) will be taxed as income when you begin withdrawing it in retirement. Additionally, there are penalties for withdrawing money from a 401(k) before the age of 59 and a half, which can make it difficult to access your savings in case of unexpected financial hardship.

On the other hand, a Roth IRA is an individual retirement account that allows you to save after-tax income for retirement. This means that unlike a 401(k), the money you contribute to a Roth IRA has already been taxed, and you won’t owe any taxes when you withdraw it in retirement. Additionally, there are no penalties for withdrawing money from a Roth IRA before the age of 59 and a half, making it a more flexible option.

Another benefit of a Roth IRA is that there are no required minimum distributions (RMDs). With a 401(k), you must begin taking withdrawals at the age of 72, whether you need the money or not. With a Roth IRA, you have the option to continue saving and letting your investments grow tax-free for as long as you want.

However, the contribution limit for a Roth IRA is much lower than a 401(k), with a maximum contribution of $6,000 per year for those under the age of 50 and an additional $1,000 allowed for those over 50. Additionally, there are income limits for who can contribute to a Roth IRA, with those who earn over a certain amount not being eligible.

Ultimately, the decision between a 401(k) and a Roth IRA will depend on your individual financial situation and retirement goals. If you’re able to max out your contributions to a 401(k) and take advantage of employer matching, it may be the best option for maximizing your retirement savings. However, if you’re looking for more flexibility and tax-free withdrawals in retirement, a Roth IRA may be a better choice.

It’s also worth considering a combination of both plans, as diversifying your retirement portfolio can provide added security and flexibility in the long run. Ultimately, consulting with a financial advisor can help you make the best decision for your individual needs and goals.