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. 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 ... Read Full Answer >>
  2. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  3. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  4. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  5. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  6. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
Related Articles
  1. Retirement

    5 Reasons Not To Convert To A Roth IRA

    Will your tax rate be lower in retirement? Do you plan to spend all your savings? Think twice about a conversion.
  2. Savings

    Why Now Is The Time For A Roth IRA

    Legislative changes in recent years make Roth IRAs worth a second look.
  3. Options & Futures

    Roth IRAs Tutorial

    This comprehensive guide goes through what a Roth IRA is and how to set one up, contribute to it and withdraw from it.
  4. Taxes

    What IRS Form 990 Tells About a Nonprofit

    Want a picture of an organization's activities? This annual form, open to the public, sums up everything from salaries paid to missions accomplished.
  5. Retirement

    The 3 Most Common 401k Rollover Mistakes

    No one is born knowing the tax rules for 401(k)s and IRAs, but only dummies, scaredy cats and suckers don't buckle down to learn them.
  6. Taxes

    Top Reasons to File Separately When Married

    Most of the time, it makes sense for couples to file their taxes jointly. Except for these possible exceptions...
  7. Taxes

    What IRS Form 1023 Is Used For

    To be treated as a tax-exempt organization, start by filling out this form.
  8. Taxes

    Late with Your Taxes? Grab IRS Form 4868

    Fill out this form to get a few more months to file your tax return. But remember, April 15 is still the payment due date if you owe taxes.
  9. Investing News

    How Does US Social Security Measure Up Abroad?

    Social Security is a hotly debated topic. After examining the retirement plans of three different countries, the U.S.'s does not come out the winner.
  10. Taxes

    What IRS Form 8949 Is For

    Selling a painting or that lake property? Disposing of your fossil fuel stocks? You need to know about this IRS form.
RELATED TERMS
  1. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  2. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  5. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  6. Guideline Premium And Corridor Test (GPT)

    A test used to determine whether an insurance product can be ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!