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. How do I open a Roth IRA if my Husband and I make over $300k?

    Between my husband and I, we make around 350k to 400k a year.  ... Read Answer >>
  2. What is the ideal contribution to a 401k?

    I contribute about 10% to my 401k. I want to know more about Roth IRAs. I have one with my company, but haven't ... Read Answer >>
  3. Can I still contribute to my Roth IRA if my spouse earns over the requirement cap?

    My spouse makes over the amount allowed to contribute to a Roth IRA. However, I do not. Is it possible... Read Answer >>
  4. What can I contribute to my Roth 401k and Roth IRA?

    If I contribute all of my compensation ($13,000) to a Roth 401k, can I also contribute $6,500 to a Roth IRA for me and $6,5 ... Read Answer >>
  5. Is a Roth IRA the right choice for me?

    Is a person with Deferred Compensation also eligible to open a Roth IRA account?  Can a person begin the Roth IRA ... Read Answer >>
  6. What would our MAGI limits be if we both contribute to a Roth?

    My spouse and I are both over 50. One is non-working and one is a working spouse with a 401k. Our total MAGI was about ... Read Answer >>
Related Articles
  1. Retirement

    Roth IRA Contribution Rules: The Basics

    What you need to know about Roth IRA contributions – from eligibility to dollar limits, deadlines to tax breaks.
  2. Retirement

    Roth IRA Contribution Limits in 2016

    Discover the benefits of Roth IRA accounts and how much you can contribute for your retirement. Learn which IRA plan is best for you.
  3. Retirement

    How Much It Takes to Max Out Your IRA

    IRAs have certain tax advantages that allow your nest egg to grow at a faster rate. But there are annual limits on how much you can contribute.
  4. Retirement

    The Backdoor Way to Qualify for a Roth IRA

    Meet with your tax advisor to find out what a backdoor Roth IRA is. Basically, it's a tax loophole that could help you prepare for retirement.
  5. Retirement

    How Can I Fund A Roth IRA If My Income Is Too High To Make Direct Contributions?

    Some high-income earners are subject to a contribution phase-out schedule that can keep them from contributing directly to their Roth IRAs.
  6. Retirement

    Roth 401(k) Vs. Roth IRA: Which One Is Better?

    It all depends on your age, your income - and your plans for your retirement nest egg.
  7. Retirement

    These IRA Contributions Will Cut Your 2015 Taxes

    No matter how you save for retirement, take advantage of the time between now and April 15, 2016, to add to your nest egg while cutting your tax bill.
  8. Retirement

    Comparing Contributions: Roth 401(k) vs. Roth IRA

    Which one works better for you? Read on.
  9. Retirement

    IRA Contribution Limits in 2016

    Find out about the 2016 limits for contributions and income thresholds for individual retirement accounts, including traditional IRAs and Roth IRAs.
  10. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
RELATED TERMS
  1. Roth IRA

    An individual retirement plan that bears many similarities to ...
  2. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  3. Individual Retirement Account - IRA

    An investing tool used by individuals to earn and earmark funds ...
  4. IRA Plan

    A plan that individuals may establish to arrange and plan for ...
  5. Spousal IRA

    A type of individual retirement account that allows a working ...
  6. IRS Publication 590: Individual Retirement Arrangements (IRAs)

    A document published by the Internal Revenue Service (IRS) that ...
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center