Many people who are employed, or have a spouse that is employed, are able to make contributions to a Roth IRA. A Roth IRA is an investment tool that allows your capital to grow in a variety of investment classes, with tax-free withdrawals as long as specific conditions have been met.
If you are a working individual, who is saving for retirement you may be asking yourself, can I contribute to both a 401k and a Roth IRA?
There are several benefits and incentives to investing in a Roth IRA besides the obvious tax advantages. There are no limits placed on your age for Roth IRA contributions, unlike traditional IRAs that take away your ability to contribute in the year that you turn 70½.
Provided you meet income and contribution requirements, you can open a new Roth IRA at any age in order to save for retirement. A Roth IRA can also be set up online at a high-quality discount brokerage such as ETrade.
Can I Contribute To Both A 401k And A Roth IRA To Maximize My Retirement Savings?
If your income falls within the guidelines of investing in a Roth IRA, it is a good idea to explore this option for retirement accounts. You can contribute the maximum amount to your 401k or 401b plans to receive the employer match, and then maximize contributions to your Roth IRA.
Can I contribute to both a 401k and a Roth IRA? For the majority of investors the answer is yes. There are many excellent reasons to invest in both a 401k plan as well a Roth IRA, as this retirement account offers you a way to save beyond the maximum amount contributed to a 401k.
Since you can not invest in a traditional IRA plan if you are covered by your employer, a Roth IRA is a great tax-advantaged account to save for retirement.
You may also wish to invest in CDs, investment properties, stocks and bonds that are not offered in your 401k. When you invest in a Roth IRA, you retain full control of your investments and can put your capital to work however you see fit.
There are fewer restrictions placed on Roth IRAs versus traditional IRAs, including mandatory withdrawal times (when you reach 70½) placed on traditional IRAs. In a Roth IRA, as long as you are employed you can contribute to your individual retirement fund, and there is no mandatory withdrawal age.
This gives you the freedom to plan out your retirement so that funds are withdrawn from your 401k first, and then pulled as needed from your Roth IRA.
There is always the possibility that taxes will be higher during your retirement years, either due to income increases or political changes. A Roth IRA provides an excellent hedge against higher personal income taxes in the future.
Retirement Planning For A Comfortable Future
By contributing the maximum amount to both your 401k and your Roth IRA, you are realizing the benefits of both types of retirement accounts, and increasing your chances of retiring comfortably.
You will be able to reduce your income taxes and taxable wages by investing in your 401k, as well as save money on future taxes with a Roth IRA.
By investing in both a 401k and a Roth IRA you are giving yourself more opportunities to build your nest egg, as well as giving yourself more flexibility in retirement to plan out your withdrawals.
You may also like:
- How Much Can I Contribute To A Roth IRA?
- Can I Rollover My 401k To A Roth IRA?
- How Does A Roth IRA Work?
- Who Has The Best Roth IRA Accounts?
- Can You Invest In Both An IRA And 401k At The Same Time?
- When Can You Cash Out A Roth IRA Without Penalties?
- When Do You Pay Taxes On A Roth IRA?
- How To Open A Roth IRA