Can I contribute to a Roth IRA and still participate in my employer-sponsored retirement plan?

By Amy Fontinelle AAA
A:

Yes, you can contribute to both a Roth IRA and an employer-sponsored retirement plan such as a 401(k), SEP or SIMPLE IRA. However, each type of retirement account has annual contribution limits. For a Roth IRA, the maximum annual contribution for 2014 is $5,500 (or $6,500 if you’re 50 or older) or, if you earned less than that, the limit is your total taxable compensation for the year. You can contribute to a Roth at any age, even past retirement age, as long as you’re still earning taxable income. A working spouse can also contribute to a Roth IRA on behalf of a nonworking spouse. For a 401(k), the 2014 contribution limit is $17,500, unless you’re 50 or older, in which case the limit is $23,000.

Contributing to both a Roth IRA and an employer-sponsored retirement plan can make it possible to save as much in tax-advantaged retirement accounts as the law allows. The tax advantages of these accounts help your savings grow faster and larger than they would in a non-tax-advantaged account. The more you contribute to your retirement savings accounts each year, the earlier you’ll have the option to retire, as long as you invest those savings wisely. Also, since it’s impossible to know what tax bracket you’ll be in at various stages in your retirement or what the tax rates will be at that time, it’s not a bad idea to have some retirement savings that you’ve already paid taxes on, like the funds in a Roth IRA, and some that you haven’t, like the funds in a 401(k). Then you can strategize your distributions to minimize your tax liability.

You can also contribute to a traditional IRA even if you participate in an employer-sponsored retirement plan, but in some cases not all of your traditional IRA contributions will be tax deductible. In addition, your combined total contributions to both a Roth and traditional IRA can’t exceed the annual limit of $5,500 in 2014 (or $6,500 if you’re 50 or older).

Before contributing to a Roth, make sure you are contributing enough to your employer’s retirement plan to take full advantage of any matching contribution your employer offers. Also, if your modified adjusted gross income (MAGI) reaches a certain threshold ($114,000 for single taxpayers and $181,000 for married filing jointly taxpayers in 2014), the maximum you can contribute to a Roth is reduced, and once your MAGI reaches $129,000 for singles and $191,000 for jointly filing spouses, you can’t contribute to a Roth that year at all.

 

RELATED FAQS

  1. Is there a limit on how much I can move from my IRA to my Roth IRA?

    There is no limit on the amount that can be converted from your Traditional IRA to your Roth IRA. As you may already know, ...
  2. I have two Roth IRAs, one of which has a balance that is much less than the total ...

    It depends. You are eligible to write off the losses only if the balance for both of your Roth IRAs (combined) is less than ...
  3. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ...
  4. What's the difference between the marginal tax rate system and a flat tax?

    Find out about the difference between marginal tax rates and flat taxes. Gain insights on both systems and the arguments ...
RELATED TERMS
  1. Guideline Premium And Corridor Test (GPT)

    A test used to determine whether an insurance product can be ...
  2. Cash Value Accumulation Test (CVAT)

    A test method used to determine whether a financial product can ...
  3. Section 7702

    The section of the United States Internal Revenue Code that defines ...
  4. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  5. Working Tax Credit (WTC)

    A tax credit offered to low-income individuals working in the ...
  6. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...

You May Also Like

Related Articles
  1. Retirement

    Is there a limit on how much I can move ...

  2. Retirement

    5 Reasons Not To Convert To A Roth IRA

  3. Savings

    Why Now Is The Time For A Roth IRA

  4. Retirement

    I have two Roth IRAs, one of which has ...

  5. Options & Futures

    Roth IRAs Tutorial

Trading Center