Can I contribute to a traditional 401(k) and a Roth IRA?
I am currently contributing to a company sponsored 401(k). I contribute 8% (annual salary $60K), which comes out to $4,800 for the year. Can I also set up and contribute to a Roth IRA? If so, what amount can I contribute?
Your eligibility to contribute to an IRA (Traditional or Roth) is the same, regardless of whether or not you contribute to a company-sponsored retirement plan, like your 401(k).
The limit for IRA contributions is $5,500/year. If you are over the age of 50, you are eligible to contribute an additional $1,000 "catch-up" contribution, for a total of $6,500/year. This is the total you can contribute to all of your IRAs, Traditional and Roth. In other words, you cannot contribute $5,500 to a traditional IRA, AND $5,500 to a Roth IRA. You can, however, contribute up to the limit for your spouse, even if they do not work. This means that a married couple can contribute up to $11K/year ($12K if both are over 50) to their IRAs ($5,500/$6,000 for each).
There are some additional rules for being able to contribute to a Roth, as you must be below a certain income limit. If you are married filing jointly, your adjusted gross income (AGI) must be below $184K. For singles, your AGI must be below $117K. If your income is above these limits, you might still be able to contribute, but only a reduced amount (see https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2016).
Keep in mind that there is a "back door strategy" for contributing to a Roth IRA, even if your income exceeds the limits for being able to contribute directly to a Roth. However, you should consult with a financial professional to assess whether or not this strategy makes sense for you because it does have tax implications.
You should be able to deduct up to 18k or 24k against your employer stated income that they pay you through your employer 401k.
a Roth IRA falls under IRA guidelines which means while you are working you can deduct against your income and put as much as $5500 if you're under 50 or $6500 if you're over 50 and haven't made IRA contributions prior.
a Roth IRA will not deduct against your income but like the IRA is limited how much you can contribute. IRA deductions do deduct against your income.
A Roth IRA grows tax free and doesn't have withdrawal requirements but an IRA grows tax deferred (pay tax later when you take money out) and you much take money out at age 70 1/2. There's a few small details to this but this is the premise of the ROTH IRA VS TRADITIONAL IRA difference
have a successful day!
ABSOLUTELY! Good for you for looking for ways to maximize your options.
You can contribute up to $18K in a 401(k) ($24K if 50+ years old). Ideally, you would contribute as much as the company match, if applicable (free money).
You can contribute up to $5,500 in a ROTH/IRA ($6,500 if > 50+).
The contribution limits for 401(k) and ROTH/IRA are not connected. The limits within ROTH/IRA are though.
The simple answer is yes. You can contribute $18,000 to your 401(k) with a catchup provision of an additional $6,000 if you are over 50, and contribute $5,500 to a Roth with a $1,000 catchup over 50. You can only do this if your income is below $117,000 for an individual or $184,000 for married filing jointly.
Best of luck and Happy Holidays, Dan Stewart CFA®
Yes, you may contribute to both. Inside of the 401(k) plan, you are allowed to make deferrals up to $18,000 in 2015-2017, those over age 50 can do an additional catch up of $6,000 into the 401(k) for a total of $24,000. Then you may also make a contribution to an individual retirement account, Traditional IRA, Roth, or both up to a maximum of $5,500/year in 2015-2017 and if over age 50, an additional $1,000.
Jeremy Reif, CRPS