Can I Contribute to a 401k and a Roth IRA?
It’s a question I get all the time… “Can I Contribute to a 401k and a Roth IRA?”
This page will answer that pesky question for you once and for all. But before that, a quick refresher on the difference between a 401k and an IRA:
- 401k – This is an employer sponsored plan in which a certain amount of money (determined by you) is taken out of your check every time you get paid and put into an account that the company has set up. From there, you invest your money in things like stocks, bonds, and money market funds. People like 401k plans because a lot of companies will MATCH your contributions to some extent.
- Roth IRA – This is an individual retirement account where you’re taxed on the front-end (before you make a contribution) rather than on the back-end (like a traditional IRA ) when you’re ready to start taking distributions. Think of it like this… in a Roth IRA, you clear up your tax obligations while you’re young. In a traditional IRA, you pay the tax when you’re old.
Now, to answer the question of “Can I Contribute to a 401k and a Roth IRA?” the simplest answer is “Maybe. Maybe not.”
You may want to maximize your retirement savings by having as many different types of retirement accounts as you can. That’s logical and admirable, but you have to figure out whether or not you’re eligible for a Roth IRA in the first place.
You CAN contribute to both IF…
- Married, filing jointly and making less than $169,000 per year
- Single, head of a household or married and filing separately (only because you and your spouse did not live together at any time during the year) and making less than $107,000 per year?
If you answered “Yes” then the answer to “Can I Contribute to a 401k and a Roth IRA?” is a resounding absolutely.
These conditions mean that you are eligible to contribute up to $5,000 per year (2010) to a Roth IRA account. This is the maximum allowed under current laws.
You CAN’T contribute to both IF…
- Are married, filing jointly an making more than $179,000 per year
- Are married, filing separately, living with your spouse and making more than $10,000 per year
- Are single, head of a household or married and filing separately (only because you and your spouse did not live together at any time during the year) and making more than $122,000 per year
Then the answer to the answer to the question of “Can I Contribute to a 401k and a Roth IRA?” is, unfortunately, no.
The reason for this is that current laws established by the Internal Revenue Service prevent people in the above circumstances from establishing and contributing to a Roth IRA. So, if you meet any of the three criteria above, then you will have to find another type of account to supplement your company’s 401k plan.
There is some middle ground to take into account as well.
You MAY be able to contribute to both IF…
- Married, filing jointly and you make between $169,001-$179,000 per year
- Married, filing separately, living with your spouse and making between $1-$9,999
- Single, head of a household or married and filing separately (only because you and your spouse did not live together at any time during the year) and making between $107,001-$122,000
Then you can contribute to both a 401k and a Roth IRA, but you can’t contribute the full $5,000.
So, there you have it.
Whether or not you can supplement a 401k plan with a Roth IRA depends on your filing status and how much taxable income you make over the course of a year.
If you want to learn about other aspects of investing, then go ahead and explore other sections of the site to find what you need.
Related 401k Information You May Like
How to roll a 401k into an IRA
How much can I contribute to my 401k?
What happens if I make an early withdrawal from my 401k?
Go back to 401k vs. IRA : The Major Differences
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