Can I Contribute to Both a 401K and a Roth IRA?

A 401K is an employer sponsored plan taken from pre-tax income while the Roth IRA is a self-directed retirement fund that comes from your after tax earned income. You can contribute to both a 401K and a Roth IRA at the same time. Here are some tips on how to contribute to both a 401K and a Roth IRA to help you achieve financial security in your retirement.

Reasons to Make 401K Contributions:

A 401K is a great retirement savings vehicle if you have an employer who will match at least a portion of what you contribute. With a 401K you must pay taxes on any money when it is withdrawn. There are some exceptions when special circumstances exist, so make sure that you are aware of them.

Rules and Benefits of a Roth IRA:

With a Roth IRA, a single person can contribute up to $5,000 from after tax income and $6,000 if he or she is over 50. For married couples that amount is doubled. To make these contributions you must make less than $101,000 for a single person and less than $159,000 if you are married and filing jointly. The benefit is that once you hit age 59 1/2, and your Roth IRA has been established for more than five years, you may make withdrawals at any time tax free.

An Interesting Loophole:

Though contributing to both a 401K and a Roth IRA is an excellent long term investment strategy, if you are close to retirement you have the option of rolling your employment 401K into a regular IRA. After a year, you can then roll that IRA into a Roth IRA, thereby eliminating the need to pay taxes upon future withdrawals if you have reached the required age. The younger employee should consider keeping both plans.

Related posts

1. Can You Have a 401k and an IRA at the same time?
2. Which Is Better, A 401K Or Roth IRA?
3. Can I Contribute To A 401K And Roth Ira?
4. Can I Rollover My 401K To A Roth Ira?
5. Where To Rollover A 401K?

Send this page to a friend ...

Enter friend's email address
.