Can You Have a Roth IRA and a 401(k)? - NerdWallet (2024)
You can have both a Roth IRA and a 401(k) — or another type of employer-sponsored plan such as a Simplified Employee Pension (SEP) or Savings Incentive Match Plan for Employees (SIMPLE) IRA, depending on what your employer offers — but each account has its own annual contribution limit.
In 2024, you can contribute $7,000 total across all of your Roth IRA and traditional IRA accounts (yes, you can have more than one IRA), with an extra $1,000 if you’re 50 or older. However, there are income limits for the Roth IRA.
When it comes to your 401(k) plan, you can contribute $23,000 in 2024. If you’re 50 or older, the annual contribution maximum jumps to $30,500 in 2024.
If you can max out both plans, congratulations: You’re well on your way to retirement success.
How to choose between a Roth IRA and a 401(k)
If you can’t contribute the maximum to both types of accounts, don’t worry. Most of us fall into that group. The ideal amount to save for retirement will vary by your financial situation and your overall goals. Check out our retirement calculator to measure your progress.
If you’re trying to figure out which type of account is the best place for your hard-earned dollars, start here:
If your employer offers a matching contribution in your 401(k) plan, consider contributing enough to get as much of that free money as you can.
Once you’re getting the full match, consider the pros and cons of a Roth IRA versus a 401(k). A lot will depend on the 401(k) you have. Some plans offer a good selection of low-cost investments; others, not so much. Some employers cover the plan’s administrative costs; others pass on those costs to employees. The beauty of an IRA (whether Roth or traditional) is that you can open one at just about any discount broker, with no account fees and access to a wide variety of low-cost investments.
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You can contribute to both a Roth IRA and an employer-sponsored retirement plan, such as a 401(k), Simplified Employee Pension (SEP), or Savings Incentive Match Plan for Employees (SIMPLE) IRA, subject to income limits.
Many, if not most, retirement investors can contribute to both a Roth IRA and a 401(k) at the same time. “You can and should have both a Roth IRA and a 401(k),” says Gregory W. Lawrence, a certified financial planner (CFP) and founder of retirement planning firm Lawrence Legacy Group.
Key Points. You can fund an IRA if you have a 401(k) plan through your employer. Having a workplace retirement account could make you ineligible to deduct traditional IRA contributions. Funding a 401(k) could help you reduce your taxable income so that you can directly fund a Roth IRA.
If you're under age 50 and your income allows you to contribute to a Roth IRA, you can contribute a combined $30,000 between your 401(k) and Roth IRA. Tip: Remember that the $7,000 contribution limit applies to all your IRAs combined.
The contribution limits are the same for traditional and Roth 401(k) accounts. A designated Roth 401(k) is considered a subaccount of your traditional 401(k), one that allows you to contribute post-tax dollars.
“If you open a Roth IRA for the first time in order to receive Roth 401(k) rollover funds, then you must wait five years to take a distribution penalty-free.” This rule wouldn't prevent you from withdrawing your original contributions after the rollover is complete.
Contributing to both a 401(k) and Roth IRA allows you to maximize your retirement savings and benefit from tax advantages. With a 401(k) account, you'll contribute money you haven't yet paid taxes on. Your employer may also match contributions up to a certain percentage of your annual income.
Should You Split Contributions Between a Roth and Traditional Account? Splitting contributions between a Roth and traditional account can allow you to get some tax benefit today while hedging somewhat against higher tax rates in the future.
How Much Can a Roth IRA Grow in 30 years? Over 30 years, if you invest the annual maximum of $6,000 into a Roth IRA in 2022, it could grow to $1.4 million.
A “backdoor” Roth IRA allows high earners to sidestep the Roth IRA's income limits by converting nondeductible traditional IRA contributions to a Roth IRA. That typically requires you to pay income taxes on funds being rolled into the Roth account that have not previously been taxed.
In 2024, the contribution limit is $7,000, or $8,000 if you're 50-plus. The Roth IRA income limits are $161,000 for single tax filers and $240,000 for those married filing jointly. Arielle O'Shea leads the investing and taxes team at NerdWallet.
Do you have a 401(k) plan through work? You can still contribute to a Roth IRA (individual retirement account) and/or traditional IRA as long as you meet the IRA's eligibility requirements. It usually makes sense to contribute enough to your 401(k) account to get the maximum matching contribution from your employer.
For 2022, 2021, 2020 and 2019, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can't be more than: $6,000 ($7,000 if you're age 50 or older), or. If less, your taxable compensation for the year.
You can split your annual elective deferrals between designated Roth contributions and traditional pre-tax contributions, but your combined contributions can't exceed the deferral limit - $22,500 in 2023; $20,500 in 2022; $19,500 in 2021 ($30,000 in 2023; $27,000 in 2022; $26,000 in 2021 if you're eligible for catch-up ...
If you're not sure where your tax rate, income, and spending will be in retirement, one strategy might be to contribute to both a Roth 401(k) and a traditional 401(k).
Should You Split Contributions Between a Roth and Traditional Account? Splitting contributions between a Roth and traditional account can allow you to get some tax benefit today while hedging somewhat against higher tax rates in the future.
If you don't have enough money to max out contributions to both accounts, experts recommend maxing out the Roth 401(k) first to receive the benefit of a full employer match.
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