How to contribute to a Roth IRA and 401k in the same year.

0:00 Intro
0:24 401k Contribution Limits
1:38 Roth IRA Contribution Limits
2:00 Roth IRA Income Limits
2:55 Roth IRA MAGI
3:29 Roth IRA Income Limit Example
4:25 Backdoor Roth IRA conversion
5:15 Pro-Rata Rule
7:16 How to avoid the Pro-Rata Rule
8:39 401k Tax Tip

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LEARN MORE ABOUT: IRA Accounts

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When it comes to saving for retirement, it’s always wise to consider all of the options available to you. Two popular choices are Roth IRAs and 401(k)s, but many people wonder if it’s possible to contribute to both at the same time. The good news is that the answer is yes.

First, let’s explain what each of these retirement vehicles offer. A Roth IRA is a type of individual retirement account that allows you to contribute after-tax dollars, meaning you pay taxes on the money before it goes into the account. However, once you reach retirement age, withdrawals from the account are tax-free.

On the other hand, a 401(k) is an employer-sponsored retirement plan that allows you to contribute pre-tax dollars. In other words, you don’t pay taxes on the money until you withdraw it in retirement. Employers often offer 401(k) matching, which means they’ll match a portion of the contributions you make, providing an additional incentive to use this type of account.

Now, back to the main question at hand. Yes, you can contribute to both a Roth IRA and a 401(k) at the same time, as long as you meet the eligibility requirements for each. For example, if your place of employment offers a 401(k) plan, you’ll need to enroll in it and contribute up to the annual contribution limit (which is $19,500 in 2021, with an additional $6,500 catch-up contribution allowed for those over age 50).

If you’re also interested in contributing to a Roth IRA, keep in mind that there are income limits you’ll need to be aware of. In 2021, if you earn more than $140,000 as a single filer or $208,000 as a married couple filing jointly, you won’t be able to contribute the full amount to a Roth IRA. However, you may still be able to contribute a reduced amount depending on your income level.

Many financial experts recommend contributing to both a 401(k) and a Roth IRA if you’re able to, as both offer unique benefits. The 401(k) provides a tax break now, while the Roth IRA offers tax-free withdrawals in the future. By diversifying your retirement savings across both accounts, you’re better able to manage your tax burden in retirement and ensure a financially secure future.

In conclusion, yes, you can contribute to a Roth IRA and a 401(k) at the same time, as long as you meet the eligibility requirements for each. It’s worth considering both options and determining the best combination for your personal financial situation to ensure a comfortable retirement in the years to come.