You can save in a Roth IRA and a 401(k) simultaneously


Q. S.M. from Kenton County: Someone at work told me I can only save in a Roth IRA after I hit my 401(k) limit. Is this true? Because there’s no way I’ll be hitting that limit this year, but I still want to save a little in a Roth.

A: Your co-worker is incorrect. You can save in a Roth IRA and a 401(k) simultaneously. The one rule you need to be careful about is the Roth IRA income limit: In 2020, if you’re a single tax filer, you cannot contribute to a Roth IRA if your modified adjusted gross income (MAGI) is more than $139,000 ($206,000 if married and filing jointly). If your MAGI is between $124,000 and $139,000, the amount you can contribute is reduced (between $196,000 and $206,000 if married).

And, if you’ve read this column before, you likely know that we really love the idea of saving in different types of retirement accounts. Why? Because you’re spreading out your tax obligations. Remember, you get a tax break now with your 401(k) and you’ll pay taxes on withdrawals in retirement; with a Roth IRA you contribute after-tax money, but then the account grows tax free. 

If your employer offers a Roth 401(k), consider saving some in that as well (bonus: no income limit!).

The Simply Money Point is that your train of thought is a good one – diversifying the tax treatments of your retirement accounts is a savvy money move. So, go ahead and save in a Roth IRA and 401(k) at the same time.

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