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If you want to save extra money for retirement, opening a Roth IRA can be a good idea. And the good news is: you don’t have to choose between a Roth IRA and a 401(k) — you can use both. Even if you already contribute to a 401(k) at work, you can get tax-free investment growth (and tax-free retirement income) from a Roth IRA too.
However, there are limits. Your income needs to be below a certain level to qualify for a Roth IRA if you already have a 401(k) or other employer retirement plan.
Let’s look at a few reasons why you should use a Roth IRA on top of your 401(k), and who’s allowed to use this retirement savings strategy.
Who can contribute money to a Roth IRA and 401(k)
If you have a 401(k) at work, and especially if you get an employer match for some of your contributions, you should definitely use that 401(k). Get the full employer match. And if you’re a high earner in a higher tax bracket, you might consider maxing out your 401(k) to get the biggest tax deduction from your retirement savings.
But don’t assume that your 401(k) is the end of your retirement planning. Depending on your income and filing status, you can put extra retirement savings into a Roth IRA. And the Roth IRA has some special tax perks that can make it a good fit for your personal finances and long-term investment goals.
Here are a few situations where opening a Roth IRA can be a good choice, even if you already have a 401(k):
- You’re maxing out your 401(k) and want to save extra money for retirement
- Your employer doesn’t offer a 401(k) match, or you’re not fully vested in your employer contributions — this could make your 401(k) less appealing as a retirement savings option
- Your 401(k) doesn’t have good investment options, or charges excessive fees — with a Roth IRA, you can control the investments and choose the brokerage
- You want an extra retirement savings account that’s not connected to your employer
- You are married (filing jointly) to a spouse who doesn’t have a job, or whose job doesn’t offer a retirement plan
How to qualify for a Roth IRA if you already have a 401(k)
The Roth IRA offers some special tax advantages, like tax-free growth and tax-free income in retirement. Because of these tax perks, the IRS doesn’t let some higher earners open a Roth IRA. Your income needs to be below certain thresholds to qualify for an IRA.
Make sure you understand the new 401(k) and IRA contribution limits for 2024. According to the IRS website:
- 401(k) plans have a maximum contribution limit of $23,000 for 2024. If you’re age 50 or over, you can make additional catch-up contributions of up to $7,500 to your 401(k).
- IRAs (traditional IRAs and Roth IRAs combined) have a maximum annual contribution limit of $7,000 for 2024. If you’re 50 or older, you can make an extra contribution of up to $1,000 in 2024. This $7,000/$8,000 limit includes all contributions to IRAs — Roth and traditional. For example, you could put half that $7,000 limit into a Roth, and half into a traditional IRA.
But depending on your income and filing status, you might not be able to use a Roth IRA. Here are the updated IRS rules for 2024 on who can get a Roth IRA, for a couple filing statuses.
Single filers
If you are single, and your modified adjusted gross income (AGI) is less than $146,000, you can put money into a Roth IRA, up to the full contribution limit for 2024 ($7,000, or $8,000 if you’re age 50 or over). If your modified AGI is in the “phaseout range” between $146,000 and $161,000, you can make a partial contribution to a Roth IRA. And if your modified AGI is higher than $161,000, you cannot contribute to a Roth IRA for 2024.
Married filing jointly
If you are married filing jointly, you can contribute the full amount to a Roth IRA for 2024 if your modified AGI is less than $230,000. If your modified AGI reaches the “phaseout range” of $230,000-$240,000, you can make a partial contribution to a Roth IRA. And if your modified AGI is larger than $240,000, you cannot contribute to a Roth IRA for 2024.
As a married couple, you can both contribute to your own separate Roth IRAs if your income qualifies. For example, a married couple filing jointly who are ages 44 and 45, with a modified AGI of $200,000 would be able to put a total of $14,000 into Roth IRAs in 2024 ($7,000 for each spouse).
What happens if your modified AGI is in the phaseout range? This means that you can put some money into a Roth IRA for 2024, but not the full amount of your maximum $7,000 (or $8,000) limit. The phaseout calculations are a little complicated; the higher your modified AGI, the less you can put into a Roth. Fortunately, you don’t have to go it alone: the best tax software should be able to tell you if you’re allowed to contribute to a Roth IRA.
Bottom line: Putting money into a Roth IRA and your 401(k) can be a great strategy to super-charge your retirement savings. Unless you have a really high income, you probably qualify to put money into a Roth IRA for 2024.
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