Can You Contribute to a 401k and a Roth IRA at the Same Time?

401k and Roth IRA

Saving for retirement seems simple enough. You tell your employer how much you want to contribute each paycheck, and maybe they match some of that, and the funds accumulate over time. Occasionally, you can use a 401k calculator to see how much you can take in retirement income.

Will it be enough? If not, you may want to open a Roth IRA to supplement it.

Yes, the IRS allows you to contribute to a 401(k) and a Roth IRA at the same time. The maximum contribution limits are different. You can put up to $22,500 a year into your 401(k) but only $6,500 into your Roth IRA.

Those numbers increase to $30,000 and $7,500 if you’re over 50. Combining the two can create a significant retirement nest egg.

How a Roth IRA works

A Roth IRA is an individual retirement account that you can make after-tax contributions to. That means you do it out of your net income. 401(k) contributions come from your gross income before taxes are taken out. You’ll pay taxes on those tax-deferred contributions when you withdraw them. Distributions from a Roth IRA are tax-free if you take them after age 59 ½.

Another benefit to having a Roth IRA is that there are no required minimum distributions at any age. That differs from 401(k)s that you need to start taking distributions from at age 73. In retirement, it’s best to tap the Roth IRA last. Use social security benefit payments and 401(k) distributions to sustain yourself in early retirement. Let the Roth continue to grow.

Supplementing your 401(k) plan

The IRS maximum contribution limit is a deterrent to increasing your 401(k)-retirement savings. A Roth IRA can be used to supplement that, but you don’t need to be at the maximum to take advantage of it. Many employees make 401(k) contributions of whatever their employer is willing to match, then put the rest into a Roth IRA. This creates more tax-free retirement income.

Speak to a financial planner about the implications of this. Increasing tax-deferred contributions to a 401(k) plan will lower your current tax liabilities and increase tax liabilities in retirement. Determining the proper mix between pre-tax and post-tax retirement savings is a job best left to professionals. You’ll also need help choosing investment funds for your Roth IRA.

Roth IRA versus Traditional IRA

A traditional IRA doesn’t offer the same benefits as a Roth IRA. The maximum contribution limits are the same, but contributions to a traditional IRA are tax-deferred, like a 401(k) plan. A Roth IRA combined with a 401(k) gives you a balance between taxable and tax-free income in retirement. A traditional IRA with a 401(k) doesn’t do that.    

The other issue that comes into play with a traditional IRA is the required minimum distributions (RMDs). The current IRS rules require that you take your first RMD at age 73. That translates into consuming the principal on all your retirement accounts when you hit RMD age. A Roth IRA doesn’t come with that restriction. The full principal can continue compounding after age 73.

The Bottom Line

The IRS allows you to contribute up to $6,500 per year to a Roth IRA even if you already contribute to a 401(k). That number goes up to $7,500 per year after age 50. Contributions are made after taxes have been taken out. Withdrawals in retirement are tax-free. There’s no required minimum distribution age on a Roth IRA. Withdraw only when you need it.     


401k article and permission to publish here provided by Biswajit Rakshit. Originally written for Supply Chain Game Changer and published on August 25, 2023.

Cover image by Mohamed Hassan from Pixabay

One thought on “Can You Contribute to a 401k and a Roth IRA at the Same Time?”

  1. This is a good idea when they think about retirement , i’am so happy for that . Thanks

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