Can I Contribute to Both a 401k a Roth IRA

Can i contribute to both a 401k a roth ira, regrettably there are no simple answer to this question that is been frequently asked by the people wishing to know if it is possible. It is quite clear beyond doubt that people are looking for ways to maximize their retirement savings by having and contributing to different types of retirement accounts like 401k’s and IRA’s. We before proceeding, it is crucial we understand the different types of IRA accounts and the rules that govern them. I have below basic explanation if the different types of IRA.

1. Tax-deductible IRA – The original IRA, it allows you to have a reduction in taxable income by the amount of your contributions with limits of course. Regrettably, is one of the most complicated type of IRA I have come across, with complex eligibility conditions that base their criteria on age, overall income, whether you have 401k plan or other retirement plan at your work place. Nevertheless, it is possible to have both the 401k and a tax-deductible IRA at the same time; however the requirements are confusing, and difficult.

2. Non deductible IRA – Is one of the simplest IRA to understand. Everyone is qualify to contribute under this IRA regardless of age, income, or covered by a retirement plan, provided they have earn an income at least the same amount to the amount of the IRA contribution.

3. Nondeductible IRA – Is one of the simplest IRA to understand. Everyone is qualify to contribute under this IRA regardless of age, income, or covered by a retirement plan, provided they have earn an income at least the same amount to the amount of the IRA contribution.

4. Roth IRA – Under Roth IRA, there are no tax deduction. The contributions are tax free but withdrawals are subject to certain conditions, but not taxed at all. Roth IRA’s are not available to people on higher income. The single filers AGI should be less than $120,000; while married couples are below $176,000.

Therefore, it is possible to have both 401k and an IRA at the same time so far you meet the conditions of the IRA you want. For normal middle-income 401k participants, the combination of 401k-Roth IRA will be the most prudent plan for several reasons stated below:

1. Roth IRA’s has less restriction compare to traditional IRA. For intance there are no compulsory minimum distribution regulations with a Roth. This gives you additional flexibility in retirement.
2. Roth’s offer a hedge against higher tax rates in the future. 401k retirement withdrawals are taxable and there are no guarantees that the marginal tax rate in retirement will be lower than as it is right now. Roth withdrawals will not be taxed.
3. The 401k-Roth plan permits you to get the most out of retirement savings.

Other approach suggested by some retirement planners is to first of all, contribute to 401k to a level adequate to match-out employer matching contributions, then start to contribute to a Roth IRA.