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Having Both a Roth IRA and a 401(k) at the Same Time

By Felix Thorpe · Retirement Accounts Writer

Yes, you can have both a Roth IRA and a 401(k), and most people with employer plans do

You are allowed to contribute to a Roth IRA and a 401(k) in the same year. They are separate accounts with separate contribution limits, separate tax treatment, and separate withdrawal rules. The IRS does not prohibit owning both. What matters is whether you stay within the contribution limits for each account and whether your income falls below the Roth IRA income limits that apply to your tax filing status.

The practical reason to have both is that they serve different purposes. Your 401(k) reduces your taxable income in the year you contribute (if it is a traditional 401(k)), while a Roth IRA contribution does not. But money you withdraw from a Roth IRA in retirement comes out tax-free, whereas 401(k) withdrawals are taxed as ordinary income. Having both gives you flexibility in retirement to manage which account you draw from and how much tax you owe in any given year.

Key Takeaways

  • You can contribute to both a Roth IRA and a 401(k) in the same tax year without violating IRS rules, as long as you stay within each account's separate contribution limit.
  • A traditional 401(k) reduces your taxable income now, while a Roth IRA does not, but Roth withdrawals in retirement are tax-free and 401(k) withdrawals are taxed as income.
  • Roth IRA contributions are blocked if your modified adjusted gross income exceeds the limit for your filing status, which changes each year.
  • If you have a workplace Roth 401(k) option, you can contribute to that and a separate Roth IRA in the same year, though the contribution limits are separate.

How the contribution limits work when you have both accounts

Each account has its own annual contribution limit, and they do not reduce each other. For 2024, you can contribute up to $23,500 to a 401(k) (whether traditional or Roth) and up to $7,000 to a Roth IRA if you are under age 50. If you are 50 or older, you can add catch-up contributions: $7,500 extra to the 401(k) and $1,000 extra to the Roth IRA.

The limits are separate because the accounts are separate. Contributing $7,000 to a Roth IRA does not reduce how much you can put into your 401(k). However, if your employer offers a Roth 401(k) option and you contribute to that, the Roth 401(k) contribution counts toward the $23,500 401(k) limit, not toward the Roth IRA limit. So if you put $15,000 into a Roth 401(k) through your employer, you still have $8,500 left to contribute to a traditional 401(k) if your plan allows it, and you can still contribute $7,000 to a separate Roth IRA.

Income limits that affect Roth IRA contributions

A Roth IRA has income limits that a 401(k) does not. If your modified adjusted gross income (MAGI) exceeds a certain threshold based on your tax filing status, you cannot contribute the full amount to a Roth IRA, and above a higher threshold, you cannot contribute at all. These limits change each year. For 2024, the phase-out range for single filers starts at $146,000 and ends at $161,000. For married filing jointly, it starts at $230,000 and ends at $240,000.

Your 401(k) contributions are not affected by these income limits. You can earn $500,000 a year and still contribute the full $23,500 to your 401(k). This is one reason high-income earners often max out their 401(k) first, then use a Roth IRA if they are below the income limit, or explore a backdoor Roth conversion if they are above it.

Tax treatment: now versus retirement

A traditional 401(k) contribution reduces your taxable income in the year you make it. If you earn $80,000 and contribute $10,000 to a traditional 401(k), your taxable income for that year is $70,000. A Roth IRA contribution does not reduce your taxable income. If you contribute $7,000 to a Roth IRA, your taxable income stays at $80,000.

In retirement, the tax picture flips. Withdrawals from a traditional 401(k) are taxed as ordinary income at whatever tax rate applies in that year. Withdrawals from a Roth IRA are tax-free, as long as the account has been open for at least five years and you are at least 59½ years old (with some exceptions). Having both accounts lets you choose which one to draw from in any given year, which can help you manage your tax bracket in retirement.

Withdrawal rules and required minimum distributions

A 401(k) requires you to start taking withdrawals at age 73 (as of 2023, under the SECURE 2.0 Act). These are called required minimum distributions (RMDs), and the IRS calculates the amount based on your age and account balance. You must take them whether you need the money or not, and they are taxed as income.

A Roth IRA has no required minimum distributions during your lifetime. You can leave the money in the account to grow tax-free for as long as you live, and withdraw only what you need. This makes a Roth IRA useful if you do not need the retirement income and want to pass tax-assistance programs to heirs. However, if you inherit a Roth IRA from someone other than a spouse, you will have to withdraw it within ten years under current rules, though the withdrawals themselves remain tax-free.

When a backdoor Roth makes sense

If your income is too high to contribute directly to a Roth IRA, you may be able to use a backdoor Roth conversion. This involves contributing money to a traditional IRA (which has no income limit), then converting it to a Roth IRA. The conversion is taxable in the year you do it, but the money ends up in a Roth account where it can grow tax-free.

A backdoor Roth is most useful if you have a 401(k) at work and want additional Roth savings. You contribute to the traditional IRA, convert it immediately, and pay tax on the conversion. The key is to do this in the same year and to have no other pre-tax IRA balances, because the IRS pro-rata rule can complicate things if you do. Many people with high incomes and employer 401(k)s use this strategy to build Roth savings alongside their 401(k).

Employer match and Roth contributions

If your employer offers a match on 401(k) contributions, the match always goes into a traditional account, even if you choose to contribute to a Roth 401(k). Your employer match is not taxed when you receive it, but it is taxed when you withdraw it in retirement. This is one reason to contribute enough to your 401(k) to capture the full match before maxing out a Roth IRA: the match is assistance programs, and the tax deferral on it is valuable.

A Roth IRA does not have an employer match. It is an individual account you open and fund yourself. So if you are deciding between putting extra money into a Roth IRA or a Roth 401(k), consider whether your employer offers a match on the 401(k). If they do, the Roth 401(k) may be the better choice up to the match limit, because you get the employer contribution plus the Roth tax treatment.

Frequently Asked Questions

Does contributing to a 401(k) reduce the amount I can contribute to a Roth IRA?

No. The contribution limits are separate. You can contribute the full $23,500 to a 401(k) and the full $7,000 to a Roth IRA in the same year (2024 amounts). However, if your income is too high, you may not be able to contribute to a Roth IRA at all, regardless of how much you put in your 401(k).

Can I convert my 401(k) to a Roth IRA?

Yes, you can do a Roth conversion, but it is taxable. You withdraw money from your 401(k) and deposit it into a Roth IRA. You pay income tax on the amount converted in that tax year. This is different from a backdoor Roth, which uses a traditional IRA as the intermediate step. Conversions make sense if you expect to be in a lower tax bracket in the year you convert than you will be in retirement.

What happens to my 401(k) if I leave my job?

You can leave it with your former employer, roll it to an IRA, or roll it to your new employer's plan if they accept rollovers. A Roth IRA is not affected by job changes—it is your personal account and stays with you. If you roll a traditional 401(k) to a traditional IRA, the tax treatment stays the same. If you roll it to a Roth IRA, it becomes a taxable conversion.

Should I max out my 401(k) or my Roth IRA first?

Most people should capture their employer match in the 401(k) first, since that is assistance programs. After that, it depends on your income, tax bracket, and whether you expect to be in a higher or lower bracket in retirement. A Roth IRA is useful if you want tax-free growth and no required withdrawals. A 401(k) is useful if you want to reduce your taxable income now.