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I will be a new participant in my Company’s 401(k) plan at the beginning of 2012. This seems like a good idea since I will not pay tax on the contributions and my Company will match my contributions. Can I continue to fund my Roth IRA while I am also starting to fund my 401(k)?
One of the most common questions among retirement planning overachievers is whether they can contribute to both a 401(k) and a Roth IRA. While there are participation limits and restrictions for each plan, most people will find they can participate in both.
401(k) Restrictions
In order to contribute to a 401(k) plan, your employer must provide you with a plan. Unlike some other retirement planning opportunities, there are no income restrictions for 401(k) plan participation. Therefore, you could make $500,000 or more and still be eligible to contribute to your 401(k) plan. The maximum contribution amount allowed, however, is affected by your age and varies by year.
Roth IRA Restrictions
To be eligible to contribute to a Roth IRA you or your spouse must have earned income. In addition, your modified adjusted gross income cannot exceed certain levels. Roth IRA plans are available privately, not through employers, so you have to open up an account on your own.
Can You Contribute to A Roth IRA and a 401(k)?
As long as you meet the separate eligibility criteria for both a 401(k) and a Roth IRA, you can contribute to both. No restriction exists whereby your participation in one prevents you from saving in the other.