Subject to income restrictions, you can contribute to a Roth IRA in addition to an employer-sponsored retirement plan like a 401(k), Simplified Employee Pension (SEP), or Savings Incentive Match Plan for Employees (SIMPLE) IRA. Nevertheless, the annual contribution caps for each kind of retirement account vary.
The maximum yearly contribution for both traditional and Roth IRAs in 2024 is $7,000, plus an extra $1,000 catch-up contribution if you’re 50 years of age or older. The maximum is your total taxable compensation for the year if you made less than that.
As long as you have taxable income, you can contribute to a Roth account at any age—even after you reach full retirement age. On behalf of a nonworking spouse, a working spouse may also make contributions to a Roth IRA.
Yes, you can have both a 401(k) and a Roth IRA. In fact, doing so can be a great way to maximize your retirement savings and take advantage of the tax benefits offered by both types of accounts.
Here’s a breakdown of the key differences between 401(k)s and Roth IRAs:
| Feature | 401(k) | Roth IRA |
|---|---|---|
| Contribution Limits | $23,000 in 2024, plus a $7,500 catch-up contribution for those 50 or older | $7,000 in 2024, plus a $1,000 catch-up contribution for those 50 or older |
| Tax Deduction | Yes, your contributions are deducted from your taxable income | No, your contributions are not tax-deductible |
| Taxes on Withdrawals | Taxes are due on withdrawals in retirement | Withdrawals in retirement are tax-free |
| Employer Match | Many employers offer a matching contribution, essentially free money | No employer match |
| Investment Options | Limited to the options offered by your employer’s plan | Wide range of investment options available |
Here are some of the benefits of having both a 401(k) and a Roth IRA:
- Maximize your retirement savings: By contributing to both accounts, you can save more money for retirement than you could with just one account.
- Take advantage of tax benefits: You can get an immediate tax break with a 401(k) and a future tax break with a Roth IRA.
- Diversify your investments: You can choose different investment options for your 401(k) and Roth IRA, which can help you spread out your risk.
Here are some things to consider when deciding whether to contribute to both a 401(k) and a Roth IRA:
- Your income: If your income is below the Roth IRA income limits, you may be able to contribute to both a 401(k) and a Roth IRA.
- Your employer’s 401(k) plan: If your employer offers a matching contribution, you should definitely contribute enough to get the full match.
- Your investment goals: If you want to save for retirement and also have some money available for other goals, you may want to contribute to both a 401(k) and a Roth IRA.
Here are some additional resources that you may find helpful:
- NerdWallet: Can You Have a Roth IRA and a 401(k)?
- Investopedia: Can I Fund a Roth IRA and Contribute to My Employer’s Retirement Plan?
- IRS: Retirement Topics – Traditional and Roth IRAs
Ultimately, the decision of whether to contribute to both a 401(k) and a Roth IRA is a personal one. You should consider your individual circumstances and financial goals before making a decision.
Frequently Asked Questions
Can I contribute to a Roth IRA if I already have a 401(k)?
Yes, you can contribute to a Roth IRA even if you already have a 401(k). However, there are income limits for Roth IRAs. For 2024, the income limit is $153,000 for single filers and $228,000 for married couples filing jointly.
What are the benefits of having both a 401(k) and a Roth IRA?
There are several benefits to having both a 401(k) and a Roth IRA. First, you can maximize your retirement savings by contributing to both accounts. Second, you can take advantage of the tax benefits offered by both types of accounts. With a 401(k), you get an immediate tax break on your contributions. With a Roth IRA, your withdrawals in retirement are tax-free.
What are some things to consider when deciding whether to contribute to both a 401(k) and a Roth IRA?
There are a few things to consider when deciding whether to contribute to both a 401(k) and a Roth IRA. First, consider your income. If your income is below the Roth IRA income limits, you may be able to contribute to both accounts. Second, consider your employer’s 401(k) plan. If your employer offers a matching contribution, you should definitely contribute enough to get the full match. Finally, consider your investment goals. If you want to save for retirement and also have some money available for other goals, you may want to contribute to both a 401(k) and a Roth IRA.
How do I open a Roth IRA?
You can open a Roth IRA at most major banks and brokerage firms. You will need to provide some personal information, such as your Social Security number and date of birth, and you will need to fund the account with money.
How much should I contribute to my Roth IRA?
The maximum amount you can contribute to a Roth IRA in 2024 is $7,000. If you are 50 or older, you can contribute an additional $1,000.
Having both a 401(k) and a Roth IRA can be a great way to maximize your retirement savings and take advantage of the tax benefits offered by both types of accounts. However, it is important to consider your individual circumstances and financial goals before making a decision.
401(k) and Roth IRA
You can save as much as possible in tax-advantaged retirement accounts by making contributions to both an employer-sponsored retirement plan and a Roth IRA.
Your nest egg can increase more quickly and significantly thanks to these accounts’ tax advantages than it could in non-tax-advantaged accounts. As long as you make prudent investments, you can retire earlier if you contribute more to your retirement savings accounts each year.
Naturally, you can never predict which tax bracket you will be in or the rates at which you will file for retirement. Therefore, having retirement funds that you have already paid taxes on is not a bad idea (e g. among others, like a Roth IRA)—and some that you haven’t, like a conventional 401(k) After that, you can arrange your distributions to pay as little tax as possible.
Aim to maximize your employer’s match if you are unable to contribute the full amount permitted to your employer’s retirement plan.
Even if you take part in an employer-sponsored retirement plan, you are still able to make contributions to a traditional IRA. However, depending on your income and whether you or your spouse are covered by an employer retirement plan, your traditional IRA contributions might not be tax deductible. Naturally, you are not allowed to contribute more than the annual maximum to both your traditional and Roth IRAs combined.
Do Roth IRA Contributions Count Toward Your 401(k) Limit?
No, your 401(k) limit is not affected by contributions made to a Roth IRA. Contributions made to a Roth IRA do, however, count toward your overall IRA limit. Therefore, if you make contributions to both a traditional and a Roth IRA, the total amount cannot be greater than the annual contribution cap for each.