The 401(k)/Roth IRA Combo Platter: How It Can Work to Your Advantage (2024)

Melissa Phipps

Melissa Phipps is a retirement planning and investing expert who has covered those topics for more than 20 years as a writer, editor, and author. Her writing has appeared inWorth,Financial Planning,Financial Advisor,The American Lawyer, Institutional Investor, and many other publications.

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Updated on April 21, 2022

Reviewed byAndy Smith

Fact checked byDavid Rubin

In This Article

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In This Article

Tax and Distribution Factors
Eligibility and Contribution Limits
Other Retirement Account Combos
How Much to Save
Frequently Asked Questions (FAQs)

The 401(k)/Roth IRA Combo Platter: How It Can Work to Your Advantage (1)

Putting your money into both a 401(k) plan and a Roth IRA offers the perfect mix of tax savings—some now and some in the future. Roth IRA savings are made with after-tax dollars, so there's no conflict between this type of plan and a traditional 401(k), which is funded with pre-tax dollars.

There are some contribution and deduction limits, but the IRS permits you to save money to both.

Tax and Distribution Factors

A Roth IRA is a great choice if you're already saving regularly to a 401(k)and you're looking for a way to save even more. The money in your 401(k) will be taxed at the time you take it out, because you didn't pay taxes on your contributions. Roth distributions of principal will not be taxed, because you've already paid taxes on this money.

Note

The growth in a 401(k) is tax-deferred until you take it out in retirement. Roth IRA earnings aren't taxable in most cases if you've held the account for at least five years and have reached age 59 1/2.

A Roth IRA can be a great savings option for other goals, like buying a house or paying for a child's college costs. The value of your Roth contributions can be withdrawn at any time without any taxes or penalties, because you already paid taxes on that money at the time you earned it.

You must begin required minimum distributions (RMDs) from a 401(k) or a traditional (non-Roth) IRA at age 72 (age 70 1/2 you reached 70 1/2 before January 1, 2020). But there are no required minimum distributionsfrom a Roth IRA account until after the owner's death. The account's beneficiaries may be required to take RMDs in order to avoid penalties.

Eligibility and Contribution Limits

There are no modified adjusted gross income (MAGI) limits for saving to a 401(k), so you can make use of this type of account, no matter how much or how little money you earn. You might not be able to save the full amount allowed each year to a Roth IRA, or you may not be able to contribute at all if you earn above certain MAGI limits.

The amount of your contribution also depends on your income tax filing status.

2022 Roth IRA Income Limits
If Your Filing Status Is:	And Your MAGI Is:	Then You Can Contribute:
Married filing jointly or qualifying widow or widower	< $204,000	Up to the limit
Married filing jointly or qualifying widow or widower	≥ $204,000 but < $214,000	A reduced amount
Married filing jointly or qualifying widow or widower	≥ $214,000	Zero
Married filing separately, and you lived with your spouse at any time during the year	< $10,000	A reduced amount
Married filing separately, and you lived with your spouse at any time during the year	≥ $10,000	Zero
Single, head of household, or married filing separately, and you didn't live with your spouse at any time during the year	< $129,000	Up to the limit
Single, head of household, or married filing separately, and you didn't live with your spouse at any time during the year	≥ $129,000 but < $144,000	A reduced amount
Single, head of household, or married filing separately, and you didn't live with your spouse at any time during the year	≥ $144,000	Zero

Note

The amount you can save applies collectively to all IRA accounts—both traditional and Roth. It's not a limit for each account.

Other Retirement Account Combos

You can save to both a traditional IRA and a Roth IRA if you don't have a 401(k) through work, as long as your combined savings don't exceed the $6,000 or $7,000 annual limit.

It might not make sense to save to a traditional IRAand 401(k) in the same year, because these two kinds of accounts are designed to do the same thing. The only difference is that IRAs have much lower contribution limits than 401(k)s.

Note

You can save to a small business retirement plan, such as a SEP IRA, if you earn income from freelance or contracting work.

How Much to Save

It makes sense to take full advantage of any employer matching contributions to a plan at work before putting money into an IRA. Save at least as much as the matching percentage if your employer matches your 401(k) contributions.

One good rule of thumb is to save 10% to 15% of pretax income. Consider maxing out a Roth IRA after you reach this point, or at least setting aside as much as you can into this type of account throughout the year. The tax benefits will pay off, particularly if you expect your income tax rate to rise over time.

Frequently Asked Questions (FAQs)

What's the difference between a Roth IRA and a 401(k)?

An IRA and 401(k) are both retirement savings vehicles. An IRA is an account opened by an individual, and a Roth IRA allows you to save after-tax funds to withdraw tax-free in retirement. Whether you can contribute to a Roth IRA depends on your income. A 401(k) is sponsored by an employer. You contribute pre-tax funds to a 401(k), and an employer may contribute as well. Those contributions lower your income taxes.

What's the difference between a Roth IRA and a traditional IRA?

Both types of IRAs allow you to save for retirement. A Roth IRA allows you to save after-tax funds, and you must meet income requirements to contribute to one. You can withdraw those funds tax-free in retirement. A traditional IRA allows you to save pre-tax funds, and you may be able to deduct your contributions, depending on your income and whether you and/or your spouse have retirement plans at work. You pay taxes on withdrawals in retirement.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Internal Revenue Service. "Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs)," Page 30.
Internal Revenue Service. "RMD Comparison Chart (IRAs vs. Defined Contribution Plans)."
Internal Revenue Service. "2022 Limitations Adjusted as Provided in Section 415(d), Etc.," Pages 2, 4.
Internal Revenue Service. "401(k) Plans - Deferrals and Matching When Compensation Exceeds the Annual Limit."
Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."
Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."
Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500."

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