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You can contribute to both a Roth IRA and an employer-sponsored retirement plan, such as a 401(k), Simplified Employee Pension (SEP), or Savings Incentive Match Plan for Employees (SIMPLE) IRA, subject to income limits. However, each type of retirement account has different annual contribution limits.
For Roth and traditional IRAs, the maximum annual contribution for 2024 is $7,000, with an additional $1,000 catch-up contribution if you’re 50 or older. If you earned less than that, the limit is your total taxable compensation for the year.
You can contribute to a Roth at any age—even past full retirement age—as long as you earn taxable income. A working spouse also can contribute to a Roth IRA on behalf of a nonworking spouse.
The 401(k) annual contribution limit is $23,000 for 2023, plus a $8,000 catch-up contribution for 2024.
Key Takeaways
- You can contribute to a Roth individual retirement account (Roth IRA) and an employer-sponsored retirement plan, such as a 401(k), Simplified Employee Pension (SEP), or Savings Incentive Match Plan for Employees (SIMPLE) IRA, subject to income limits.
- Contributing to both a Roth IRA and an employer-sponsored retirement plan can help you save as much in tax-advantaged retirement accounts as the law allows.
- Before funding your Roth, contribute enough to your employer’s retirement plan to maximize any matching contributions.
- For 2023, contribute up to $22,500 to a 401(k) and $7,000 to an IRA; catch-up amounts for those over 50 are $7,500 and $1,000, respectively.
401(k) and Roth IRA
Contributing to both a Roth IRA and an employer-sponsored retirement plan helps you save as much in tax-advantaged retirement accounts as the law allows.
The tax benefits of these accounts help your nest egg grow faster and to larger amounts than possible in non-tax-advantaged accounts. The more you contribute to your retirement savings accounts each year, the earlier you can retire, as long as you invest wisely.
Of course, it’s impossible to know which tax bracket you’ll be in at various stages in your retirement or what the tax rates will be at that time. Thus, it’s not a bad idea to have some retirement funds that you have already paid taxes on (e.g., a Roth IRA)—and some that you haven’t, such as a traditional 401(k). Then you can plan your distributions to minimize your tax liability.
If you cannot contribute the maximum allowed to an employer’s retirement plan, aim to contribute enough to max out your employer’s match.
You can also contribute to a traditional IRA even if you participate in an employer-sponsored retirement plan. However, your traditional IRA contributions may not be tax deductible, depending on your income and whether an employer retirement plan covers you or your spouse. Of course, your combined total contributions to Roth and traditional IRAs can’t exceed the annual limit.
Income Limits on Roth IRAs
Before funding your Roth, it’s a good idea to contribute enough to your retirement plan to take full advantage of any matching contribution your employer offers. It’s like getting free money, and it can help you grow your nest egg faster.
Keep in mind that if your modified adjusted gross income (MAGI) reaches a certain threshold, the amount that you can contribute to a Roth is reduced or eliminated.
The table below shows the contribution and income limits and the income phaseout ranges based on tax filing status.
| 2023 Roth IRA Income Limit* | ||
|---|---|---|
| Filing Status | 2024 MAGI | Contribution Limit |
| Married filing jointly or qualifying widow(er) | Less than $230,000 | $7,000 ($8,000 if you’re age 50 or older) |
| $230,000 to $239,999 | Reduced | |
| $240,000 and above | Not eligible | |
| Single, head of household, or married filing separately (and you didn’t live with your spouse at any time during the year) | Less than $146,000 | $7,000 ($8,000 if you’re age 50 or older) |
| $146,000 to $160,999 | Reduced | |
| $160,000 or more | Not eligible | |
| Married filing separately (if you lived with your spouse at any time during the year) | Less than $10,000 | Reduced |
| $10,000 or more | Not eligible | |
*Figures for 2023 and 2024 according to the IRS.
Can You Contribute to a 401(k) and a Roth Individual Retirement Account (Roth IRA) in the Same Year?
Yes. You can contribute to both plans up to the allowable limits in the same year. However, you can’t contribute to a Roth IRA if you’re married filing jointly with an income over $240,000, or filing single with an income of more than $161,000. Additionally, if you make more than $345,000, your employer cannot contribute more than $17,250 (5% of $345,000) to your 401(k).
Do Roth IRA Contributions Count Toward Your 401(k) Limit?
No, Roth IRA contributions do not count toward your 401(k) limit. However, Roth IRA contributions do count toward your total IRA limit. So, if you contribute to both a Roth and a traditional IRA, the combined amounts can’t exceed the annual contribution limit for each.
Is There a Benefit to Having Both a 401(k) and a Roth IRA?
401(k) plans have several advantages, including tax-deferred contributions and the possibility of an employer match. Because contributions use pretax dollars, you will pay income tax on that money in the future. Of course, if you’re in a lower tax bracket in retirement, you could come out ahead because your contributions would be tax deductible at your current, higher rate.
A Roth IRA is made with after-tax dollars and grows tax free. Qualified withdrawals in retirement are also tax free. These accounts are best suited for assets that would trigger substantial taxes—for example, investments with high growth potential or stocks with hefty dividends. Thus, having both accounts gives you tax-free and taxable income during retirement. They provide an important tax diversification benefit.
The Bottom Line
You can contribute to both a Roth IRA and an employer’s retirement plan. Understanding the contribution amounts and limitations can help you plan accordingly in your allocation process. Contributing diligently and accurately, particularly in meeting your employer’s matching contribution levels, may allow you to retire comfortably—or even early.
Correction—May 6, 2023: A previous version of this article failed to specify income based limitations for contributing to both a Roth IRA and a 401(k) in one of the FAQs.
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