Roth 401k Limits

Frequently Asked Questions

1. QUESTION:
   If I open a Solo 410K and a Roth 401K, are the contribution limits separate or combined?
   I am self-employed and have a SEP IRA. I am thinking of opening a Solo 401K and a Roth 401K. I want to convert the SEP into the Solo 401K. When I’m done I can reduce my taxable income with the Solo 401K and can have the Roth for tax free withdrawals at retirement. Are the contribution limits separate or combined for these 2 401K accounts?

   • ANSWER:
     All 401k contributions must be treated as one big contribution just as IRA accounts do. You can have many 401k accounts, but all your contributions must be added together.

     The maximum contribution to 401k is ,500.
     The maximum contribution to IRA is 00 (00 if you are 50 years old or older). The amount you can contribute to IRA could be reduced if you earn too much income. IRS publication 590 goes into full details on how much you can contribute into Traditional IRA or Roth IRA.

2. QUESTION:
   Limits: 401K, Roth 401K, IRA, Roth IRA?
   Hi, can someone help with these limits… assuming the person is under 50.

   1. 401K: ,500 per year?
   2. Roth 401K: Unlimited?
   3. IRA: ,000 per year?
   4. Roth IRA: Unlimited?

   Thanks a lot!

   • ANSWER:
     Roth limits are same as traditional:

     15,500 for 401k and 4,000 for IRA.

     Only difference is that income limits don’t apply for Roth 401k making them appealing for small business owners who otherwise wouldn’t get to contribute to a ROTH due to income limitations.

3. QUESTION:
   Question regarding 401K and Roth IRA limits?
   I am over 50. I file married filing jointly with a total combined income of under 7,000. I contribute 10% of my income to a 401K plan at my work. Can I still contribute the full 00 per year to a Roth IRA, or are there restrictions on how much I can contribute to a Roth IRA because I also contribute to a 401K?

   • ANSWER:
     You can contribute the maximum to both.
     The 401K is not yet taxed, and the Roth is, so they are different entities.

4. QUESTION:
   Is the Roth 401k contribution limit pretax or after tax?
   I understand the contribution limit for any type of 401k is ,500 per year. I am wondering if this is on a pretax or after tax basis for the Roth 401k.

   If the limit is after tax, then technically you can contribute significantly more to your account. You would be able to contribute ,385 of your paycheck to your Roth 401k, have it be taxed at 35% to bring it down to ,500. Is this the case? Or can you only contribute 16,500 of your paycheck?

   • ANSWER:
     Wow MJM’s math is completely wrong especially for all those great sources he mentions. Let’s try this again.
     Roth –
     ,385 – taxes (35% from the question) = ,500 (approximately) then 4x growth = ,000 in your pocket
     Traditional
     ,385 goes in then 4x growth = 1,540 – taxes (35%) = ,000 (approx.)
     They come out the exact same. The difference is where will taxes go during this time frame. With a traditional 401k you take on the risk of taxes going up.
     As a side note matching in a Roth 401k goes into a traditional 401k account so the matching is a pre-tax contribution.

     I do want to commend you on the question though because you do catch on to the difference here. The Roth essentially allows you put a lot more money in a tax qualified account than the traditional does. Oh and to answer your question the Roth contribution is after tax. Please let me know if you have any other questions.

5. QUESTION:
   What’s the 2008 contribution limit for Roth 401k and Roth IRA combined?
   Like the question asks what is the combined total limit for the Roth 401k and the Roth IRA? I’ve read too much conflicting information that you can contribute the full 5k in the Roth IRA and 14k in the Roth 401K? Then I’ve checked with financial advisors and they indicate otherswise. Hm, please CITE sources with your response, need accurate information.

   Lastly, if anyone know what the combined limit between the Roth401k, Roth IRA and the traditional 401k also list it as well.

   Thanks!
   Can Icontribute to all three: Roth 401k, 401k and the Roth IRA?

   I know you can do the last two but what about all three?

   I am of course referring to just partial amounts so I don’t exceed the 15k annual limit and the as far as I know the 5k limit for the Roth IRA is considered separate. Thanks!
   Forgot to mention within the Roth IRA AGI limits and under the age of 50.

   • ANSWER:
     The 2008 limit for a 401k is ,500. If you’re 50 or older in 2008, you can contribute an additional ,000.

     The 2008 limit for IRAs is ,000. If you’re 50 or older on 2008, it’s ,000. However, your ability to contribute to a Roth IRA is reduced or eliminated if your modified adjusted gross income exceeds a certain amount. The amount depends on your filing status. See IRS Publication 17 for details. You can download it from www.irs.gov.

     The combined limit is the individual limits added together (,500 or ,500 depending on your age and subject to adjustment if have a Roth IRA and your modified AGI exceeds the limit).

     The limits apply regardless of whether the account is a Roth, traditional, or if you put some money in one of each. For example, let’s say that you want to fully fund your IRA, you’re under 50, and your modified AGI is less than the limit for a Roth IRA. You can put ,000 in a traditional IRA. You can put ,000 in a Roth IRA. Or, you can put some in both accounts as long as the total contributions to both accounts combined does not exceed ,000.

6. QUESTION:
   Need help with the 401k and Roth IRA limits?
   I know what the limits are, but I am not sure if I can combine them. I also have some cathcing up to do.

   I did not contribute to either my 401k nor any Roth IRA last year becuase I could not afford to. But this year I can afford to exceed the max…so I am planning on investing the ,500 max in my 401k. I know there is also a 00 catchup amount but I am not sure if this means I can give invest an additioanl ,000 in this as well?

   If I have extra money to invest even after all this, how does this affect my Roth IRA? Can I invest in that as well over and above the 401k?

   • ANSWER:
     The max contribution for a 401k for 2008 is ,500 if you will be under 50 at the end of the year. If you will be 50 or older by then, you can contribute an extra ,000. (That’s the “catch-up contribution” – it’s simply based on age, not how much you contributed in the past.)

     The IRA contribution limit for 2008 is ,000 if you’re under 50, ,000 if you are 50 or older. You can contribute the max to both a 401(k) and an IRA in the same year. They are not related.

     Note that with IRAs (but not 401ks), you can make a 2007 contribution as late as April 15, 2008 (the date the tax returns are due) as long as you had earned income in 2007. The limits for 2007 are ,000 (under 50) and ,000 (50 and older).

     So, if you are under 50 and earned at least ,000 last year, you can put ,000 in an IRA as a 2007 contribution (as long as you do it by April 15), ,000 in an IRA as a 2008 contribution, and ,500 in a 401k.

     If you’re expecting a high income this year, your 2008 IRA contribution might have to go into a regular IRA instead of a Roth. You cannot contribute to a Roth if your income is over certain limits (6k if single, 9k if married) and you might not be able to contribute the full amount if your income is close to those limits. If your income exceeds those limits, you can still contribute to a regular IRA, but not a Roth.

7. QUESTION:
   401K and Roth IRA contribution limits 2010 ?
   Can i contribute 00 in Roth-IRA and ,500 in 401K in the same year 2010. or should the total of IRA + 401K not exceed 16,500.
   I am a little confused about total limits if I am contributing to both.

   i am 26 years old and i make ,000 annually.

   thanks

   • ANSWER:
     Roth IRA max is 5k
     401k max is 16,500.00.

     Total is 21,500.00.

     If you are 50 or over. which you are not yet. You could add extra 1k for Roth IRA, 5k extra to 401k.

     Total is 27,500.00 for a person is 50 or over.

8. QUESTION:
   Roth IRA – 401k Rollover Contribution Limits – will choose best answer?
   I have a total of three retirement accounts, and I need to make sense of how the maximum contribution limits apply to them.

   1) I have a Roth IRA, to which I make the maximum contribution each year. This year I have already deposited the maximum of 00.

   2) Totally separate from that account, I have a small 401k account with a former employer. I have left the employer, and they are forcing me to exit their plan. The balance on this account is only around 0.

   3) I just (today) opened a Bank of America Rollover IRA account. I opened this account for the purpose of receiving the funds from account #2, which I am being forced to exit.

   So the question is: if I rollover the 0 from my old 401K to the new Rollover IRA account, does this affect the contribution limits for my primary IRA account, the Roth? The Roth is my primary vehicle for retirement savings, and I don’t want to do anythat that reduces my ability to max it out. (And this year, it’s already maxed out).

   Thanks in advance. I will give 10 points for best answer.

   • ANSWER:
     As mentioned a rollover is not a contribution.

     It is usually best to do a direct trustee to trustee transfer to avoid any withholding or tax liability.

     But depending upon your ex-401k plan, they might give or send you a check (ours does if total is less than 00) in which case they would withhold 20% of the distribution (approx 0) towards taxes. But if you add that missing 20% back in from other sources when rolling it over within 60 days, there will no tax liability and you would get credit for the 20% withholding at tax time. If you do not add the missing withholding back in during rollover, that ~0 would be taxed and subject to 10% penalty (about another ).

9. QUESTION:
   Is there any income limits with a roth 401k IRA?

   • ANSWER:
     Be careful – no such thing as a “Roth 401k IRA”. A Roth 401k has no income limit. A Roth IRA is currently limited to 00 contribution per year for those under 50 and imposes an income limit of 0,000 if single / 0,000 if married.

10. QUESTION:
    Why do 401k and IRA have different limits? Don’t all 401k contribution go into either IRA or Roth IRA?
    I am still very confused after reading the answers on various sites on the difference between 401k and IRA.

    Yes, 401k is the company plan, the employee is nice and matches part of the amount you contribute. But doesn’t all the money you put into 401k end up in either your IRA or Roth IRA?

    If so, why is 401k limit so much higher than IRA?
    If not, what other avenues can the money you put into the 401k go to?
    Thanks Charlie. Last year for my company’s 401K, they matched 50% of all contributions to both IRA and Roth IRA. I did not hit the limit for 401K, but when doing my taxes, I realized I exceeded the combined limit of 00 for all IRAs.

    Why does 401k have a much higher limit, if all contributions will still go into the IRAs?

    • ANSWER:
      The limits are much higher in a 401k because the distribution rules are much more strict. In exchange for investing in a retirement plan that does not allow for distributions at any time you are able to invest more money.

      Has zero to do with matching of funds by employer.

      And no contributions don’t go into an IRA or a ROTH IRA. Many people mistakenly believe that an IRA is the best place to roll over your funds to after the quit one job and move on to another but often times doing so limits their options down the road. Money invested inside a 401k stays inside a 401k. They may be invested in EXACTLY the same assets (mutual funds) as you can invest in with an IRA but the rules (laws) that the mutual fund companies have to follow are different and more complex inside the 401k.

11. QUESTION:
    Can you contribute to the maximum on both Roth IRA and Roth 401k if your income is under the limit?
    I know that I can contribute to both Roth IRA and regular 401k to the maximum if my income is under the limit. However, as more and more companies offer Roth 401K, I am not sure if I can contribute to the maximum in Roth IRA when I am already contributing to the yearly maximum in my Roth 401K.

    • ANSWER:
      Absolutely you can max out both. In fact, you should if you can.

      However, I wouldn’t do it quite this way unless you’re in a pretty low tax bracket. If you’re in the 25% bracket or higher, you might consider maxing the Roth IRA, but going with the traditional 401k instead.

      This is something called “tax diversification”. It protects against changes in the tax law in the future. As an extreme example, what if income tax gets completely replaced by sales tax? The tax free withdrawals from your Roth IRA would be pointless, but at least your regular 401k would have enjoyed an upfront tax benefit.

      Like I said, that’s an extreme example, and tax diversification is a long discussion for another day. Whichever your pick, if you max out both, you’re way ahead of your peers. Go for it!

12. QUESTION:
    What are my 401k limits for 2008? (see detail for my specific situation)
    I changed jobs within 2008. In Job A I contributed k to a Roth 401k in 2008. At Job B there is no Roth option, just the traditional 401k. Am I limited to ,500 contributions at job B for a total of ,500 for the year? or are the limits independent and I can still contribute a full ,500 to the Job B 401k?

    I’d also like to rollover my prior 401k balances to IRA accounts. Say my prior 401k balances consist of 0 of traditional (pre-tax contributions) and of Roth 401k (post-tax contributions). I realize that I need to keep these balances separated since they have different tax treatment but can I co-mingle the balances with my existing traditional and Roth IRA accounts respectively? or is there any reason to open brand new accounts to roll these balances into?

    • ANSWER:
      Num sabe fazer conta…

13. QUESTION:
    I have been putting in 500 a year into my 401k. How much total could I contribute into Roth IRA besides?
    I have been putting in 500 a year into my 401k. How much total could I contribute into Roth IRA besides?
    traditional 401k limit of 500 for 2009 & 2010.

    It’s confusing. Some websites say 00 in addition to the 500, some say 500 includes the 00. Could you clarify please. Thank you.

    • ANSWER:
      Yes, you can put the 00 in to a Roth IRA also.

      I do exactly that. I max out my 401k AND I put k in to a Roth.

14. QUESTION:
    Urgent Question: Roth IRA: Do employer 401k contributions count for income limits?
    If I add up my income + my employer’s 401k contributions I may exceed the Roth IRA income cap for 2008.

    When calculating the income cap for Roth IRA contributions, do you include the employer 401k contributions? Or do I just go by my income and not count the employer 401k contributions?

    Thanks,
    Daniel

    • ANSWER:
      Your 401k contributions (both your contributions from your pay as well as your employer’s contribution) are not included in your income for purposes of determining your eligibility for contribution to a Roth IRA.

      For 2008, your modified adjusted gross income cannot exceed 1,000 (9,000 if married filing jointly) in order to make a maximum contribution to your Roth IRA.

15. QUESTION:
    Can I convert a non deductible IRA that has after tax 401K funds into a Roth in 2010 when income limits expire?

    • ANSWER:
      Dear Bobby: Great question, not many people have thought that far ahead. Why not? Look at IRS Pub 17 page 124 and it makes clear the procedure to follow when you convert a nondeductible IRA to a Roth. Obviously the 0,000 figure is a hurdle now for you and in 2010 that hurdle will be removed. Make sure to retain all documentation related to the origin of the IRA and the tax paid status on the funds. Remember you can keep that Roth going even after you reach age 70 1/2.

      This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provide. Click on my profile to read more.
      Errol Quinn Enrolled Agent Master Tax Advisor

16. QUESTION:
    ROTH 401k/IRA/Power Point Help?
    I have assignment for my computer science class. I need to make a power point about the subject. and the power point has to have 15 slides or more. Requirements:
    a) Roth IRA Explanation
    b) Roth 401k Explanation
    c) Contribution limits for Roth IRAs and Roth 401ks.
    d) Differences between Roth IRAs and Roth 401ks.
    e) Advantages a Roth 401k might have over a Roth IRA and vice-versa.
    f) Can you transfer a Roth IRA to a Roth 401k and vice versa? How? Limitations?
    g) Can you have both a Roth IRA and a Roth 401k?
    h) Can you contribute to both a Roth IRA and a Roth 401k the same year?
    i) 5 good reasons for using a Roth 401k and/or a Roth IRA. Be sure to include the following reasons:
    1) tax advantages
    2) Social Security’s questionable nature
    3) Disappearing pensions
    4) how much living expenses might be at various points in the future (10, 20, 30, 40 years from now) due to inflation.
    I guess my question is can do the project and show what to put on each slide and meet all the requirements.

    • ANSWER:
      Sounds like a good project, you should learn alot about retirement funds by the time your done. Good luck on your research, google is your friend on this one.

17. QUESTION:
    Roth 401K dispersment after 70.5 yrs of age?
    I will have to take the minimum dispursement required by law this year. Will I be penalized under Employer Roth 401K rules which limit withdraws while still employed?

    • ANSWER:
      The employer is REQUIRED to comply with mandatory withdraw LAWS. The law does NOT permit penalties for MANDATORY withdraws.

18. QUESTION:
    I have a 401k (TSP) account, traditional IRA, and Roth IRA. What are my contribution limits to each?
    I am married and our income is under ,000 per year.

    • ANSWER:
      Paula M is WRONG.
      You can have all 3. As VinTek said, your combined contributions in both Traditional and ROTH IRA cannot exceed 00/tax year. You can spread this 00 across any number of accounts you want.

      ROTH IRA is NOT NECESSARILY better than Traditional IRA as VinTek implied. For tax purposes, if you want to bring down your AGI, and if you’re eligible ( since you’re married – filing seperately/Jointly…Your AGI etc. ), you may prefer Traditional IRA today instead of TAX FREE advantage of ROTH IRA down the line.

      If you have patience, you might want to go thru’ the link below:

      http://www.401khelpcenter.com/2006_limits.html

      Also check out http://www.401khelpcenter.com/

19. QUESTION:
    Besides 401k and Roth IRA and traditional IRA, what are my options for tax deferred investing?
    I have my 401k maxed out and both the Roth IRA and traditional IRA have low contribution limits of about 00 this year.

    Are there any tax deferred ways of saving for retirement with much larger amounts (say ,000 to ,000 a year)?

    Obviously I can just save in a normal investment account. My understanding is that only dividends (not growth) are taxed each year. A tax deferred account just defers tax on the dividends (correct me if I’m wrong). If that’s the case (and if I have no alternatives) then I’ll just try to choose a fund that doesn’t give dividends.

    • ANSWER:
      If you can start your own small business, you could look into SEP, SIMPLE, and Keogh accounts. They provide similar tax deferral with higher contribution limits.

      You could decide on investing in rental properties. They provide many tax advantages as well. Tax on capital gains for selling real estate can be deferred if you use the proceeds to invest in another property.

      More options include investing in municipal bond funds, where the dividends can be tax free, or investing directly in tax exempt municipal bonds.

20. QUESTION:
    What is the cut off date for rolling over my 401K into a Roth IRA so that it stays on 2006′s tax return?
    Say I made less than 90K in 2006, but I will make more than 150K in 2007 and I want to roll my 401K into a roth. Should I have done it before Dec/31/2006, Can I do it now before april 17th or is it possible to wait until after the april 17th deadline? Also will the rollover count towards my 2006 contribution limit for my roth IRA?

    • ANSWER:
      Congrats on your higher paying job! Unfortunately, you should have converted it before Dec. 31, 2006 to have it stay on your 2006 tax return. If you make more than 100k you can’t convert it until you make less than 100k or until after 2009. For 2010 and beyond the 100k limit is repealed. If you don’t want to leave it at your previous company you can still do a rollover of your 401k to a Traditional IRA and then convert it to the Roth IRA when it makes sense for you to do so. The rollover will not count towards any contribution limit for either the Traditional or Roth IRA.

21. QUESTION:
    What is the maximum yearly contribution to 401k plans?
    The limit for a Traditional 401k is ,500/year, and the limit for a ROTH 401k is 00/year. However, this year I put 00 in my Traditional, and 00 in my ROTH 401K, and Turbotax says I am over my legal limit. There seems to be a conflict in the tax code, so I must be misunderstanding something. Even my payroller and retirement account company are confused.

    • ANSWER:
      you are entering in your 3000 into Turbo Tax and you shouldn’t. The 401k deduction is already accounted for in your net income. If you look at your w-2 you’ll see that the social security income is at least ,000 higher than the taxable amount. The difference is your 3k traditional 401k contribution.

      Little confused when you say k limit for Roth 401k. That’s not true…the k limit is for all IRA’s not 401k’s. The limit for 401k’s is .5k and can be split any way between ROTH and Traditional. Either way it’s all accounted for in the w-2 and shouldn’t be entered into TurboTax at all.

22. QUESTION:
    Do my 401k contributions reduce my overall limit so I can contribute to a Roth IRA?
    Basically, I’m asking if I make 3,999 a year, contribute ,000 to my 401k, does that bring my earned income level to ,999 and therefor make me eligible for a Roth IRA?
    To clarify a little bit more, I’ve capped out my 401k contribution for the year, and I’d like to continue to contribute to my retirement, but my total income will exceed the income limits for the Roth IRA (including my 401k money). Is the income limit the gross of my total income, or net post 401k-contribution? Thanks.

    • ANSWER:
      Yes. Very simply, if you max out your 401(k) and decrease your net income you may become eligible for a full Roth IRA contribution.

      You can still contribute if you make more than ,000 but it will be less than the maximum ,000. I’m assuming you are single.

23. QUESTION:
    What are my retirement combination limits?
    My company states that the IRS limits the dollar amount an employee can contribute on a combined standard before-tax and Roth 401(k) basis. For calendar year 2008, the limit is ,500. I believe that means that both 401k and Roth 401k contributions through my employer are limited to ,500 for the year.

    Can I contribute the maximum ,500 and the open an IRA and contribute the 00 maxium there too? The would be a total of ,500 per year.

    • ANSWER:
      It primarily depends on how much you make per year, and your maritial status. My wife and I contribute the max to our 401k plans (15500 for her, and 20500 for me – I’m 50 this year). Because of income limits, we are not eligible for a traditional IRA (at least not eligible to deduct contributions for tax purposes), but we both contribute the max (5000 her, 6000 me) to a ROTH IRA.

      See the link for limits and how they may affect you.

24. QUESTION:
    What if I have 401K and Roth IRA both?
    I am wondering what is the limit contribution for me in that case?
    I am currently have set up a ROTH IRA on my own with an investment company and job is offering a 401K.
    How much total I am put in to both account?
    I am in 16% tax bracket.
    Married, file jointly with my husband. Total we make lower than 40,000 per year.

    • ANSWER:
      Your Roth contribution has nothing to do with your 401k. Contribute as much as your employer will match to your 401k. As for your Roth IRA, you and your husband can each have one and contribute the maximum if that is your income. The maximum for 2008 is 00 per person if you are under 50 and 00 if you are over 50. A couple things to consider when your income is that low is: First, if you end up needing the money contributed, there is a large tax penalty (10%) if it has already been reported on a tax return. Second, you must have the same or more dollar amount of “earned income” as the amount you can contribute. Earned income is money earned while working. Investment returns, real estate income and certain other forms of income are not considered earned income.

25. QUESTION:
    can you rollover 401k into an existing roth IRA?
    I have a 401k with my job and a Roth IRA. I’m planning to leave my job soon (for school) so can I rollover my 401 into the current Roth IRA since it would be less than the annual contribution limit (about 00). Or do I have to open a “Rollover IRA” and then maintain two separate IRA accounts?

    • ANSWER:
      No, you cannot directly roll a 401(k) into a Roth. Set up a (conventional) rollover IRA. In 2010, a tax “window” will open to convert it to the Roth if you so choose.

26. QUESTION:
    How can I lower my income for Roth IRA qualification by increasing my 401k contribution?
    I participate in a 401k up to the point of employer match, and each year I’ve been making out the roth contribution. My income for 2007 will exceed the uppoer limit to qualify me for contributing to a roth. Can I meet the restricions by increasing my pre-tax 401k, even though it will be unmatched?

    • ANSWER:
      Good Question. In 2006 you can contribute 000 to your 401k regardless on employer match. If your over 50 years old you can contribute an addional 00. All those contributions will lower your marginal tax rate. Therefore you could reduce your income in regard to ROTH IRA limits. You should check with your CPA first. If you are over the limit for Roth contribution you will get hit with penalties from the IRS. Another option is the ROTH 401K. Ask your employer if that is an option. You can put in 000 per year with no income limit. You can email me on this subject if you have more questions.

27. QUESTION:
    How much can I put into retirement accounts, 401k, Trad and Roth IRA, each year?
    I am 42 so I want to put a lot away over the next 10 years to catch up. I have about k in IRAs and a 401k account. Can I max out (put in the full amount for the current or deferred tax deduction) both a Traditional and a Roth IRAs (assuming my income qualifies). Then can I also max out my 401k? Given the current limits (401k 15500, IRAs k each) that would suggest a max contribution of 25500 (I get no employer contribution). Is there a way to save more in some tax deferred account?
    As a corollary question, at the end of the year can I take all the money out of the 401k and roll it over into a Trad IRA thereby effectively having 20500 in a Trad IRA that year?

    • ANSWER:
      For people under 50, the max is ,500.

      ,500 in to your 401k; and,

      00 in to your IRA.

      Though there are different types of IRAs, your total contributions to all IRAs are limited to 00 for the year.

      Any remainder that you have to invest would go in to taxable accounts. One option would be to invest in Municipal Bonds. They are exempt from Federal Income Taxes and may be exempt from state income taxes also.

28. QUESTION:
    When you leave a company can you roll over your 401K into a Roth IRA?
    I know there are annual limits — on a rollover do these apply? I know I will have to pay the taxes first.

    • ANSWER:
      OK, you CANNOT roll a 401k account directly into a Roth IRA. You can roll your money into a Traditional IRA and avoid any taxation and penalties. (Definetly a good idea.)

      You could then convert your Traditional IRA to a Roth IRA, but in doing this you would have to include the amount you convert as taxable income (pay income tax on the full amount). This may push you into a higher tax bracket, depending on your income and the size of your account.

      Assets in a Traditional IRA will be taxed when you withdraw them in retirement while the Roth IRA assets can be withdrawn tax free in retirement. Speak with a financial planner to help decide which choice is best for you.

29. QUESTION:
    I’ve maxed out on annual ,500 contribution limit to my 401k. Can I put 00 into a Roth IRA besides 401k?

    • ANSWER:
      It may depend on several factors such as your age, income and if you have a company sponsored retirement plan.

30. QUESTION:
    401k – IRA – Roth IRA – how to pay less taxes?
    We are not eligible to contribute to Roth IRA (due to income), but would like to build this tax free vehicle up for our future. Recently i left my previous company & would to take the 401K into an IRA and then to Roth IRA in 2010 since there are no limits (at least now). However, ideally I would like to take tax liability in 2009 – is that possible or does it only happen in 2010? Currently the $$s are in old company 401K. Thanks!

    • ANSWER:
      Yea, that damn 0k limit is annoying. I see no way to take tax liability in 2009 other than to take a withdrawal which will also be subject to the additional 10% tax for early withdrawal. As you know, in 2010, taxpayers with modified adjusted gross income of more than 0,000 will be allowed to convert a traditional IRA to a Roth IRA. This change applies for one year only as far as I know. The taxes due can be spread over two years which helps. You take 1/2 on your 2010 tax return and 1/2 on your 2011 return.

31. QUESTION:
    Can I do 401K to the max allowed and IRA (not Roth) at the same time?
    I have been maxing out my 401K contribution. Can I also do an IRA? Is ther a limit for the combined? What is the IRA limit per year?

    • ANSWER:
      Yes you can and the limit is 4000 for an IRA if you are under 50 and 4500 if you are over 50. You might not get a tax credit for the IRA there is an income limit. But you can put in up to 4000 if under 50. If you want to put money into an IRA you have until April 17th this year to do it for 2005.

32. QUESTION:
    tax deduction for traditional IRA with Roth 401k contribution only?
    Recently I received my W-2 (2007) and I found that box 13 has ‘sponsored ret. plan’ unchecked. It is strange because my company provides both traditional 401k and Roth 401k, but I contributed only to Roth 401k for year 2007.

    My questions are:
    1) Can I contribute to traditional IRA (2007) and still receive tax deduction, because the ‘employer ret plan’ is unchecked? My income is over the deduction limit if the ‘employer ret plan’ is checked.
    2) Or, my employer made a mistake and should have checked the “employer ret plan” box?

    Thanks,
    Please allow me rephrase my situation.

    I contribute to only Roth 401k for 2007, not a penny in Traditional 401k. My W-2 has “employee sponsored retire plan” unchecked. Can I get tax deduction for my contribution to a separate traditional IRA? Or my W-2 is wrong?

    • ANSWER:
      Something is wrong.

      There is no such thing as a Roth 401k.

33. QUESTION:
    Can you roll a Traditional 401k into a Roth 401k?
    If so, are there any limits on who may do so or how much you can convert?

    The scenario I’m thinking about is if an employer starts offering a Roth option, would you be able to do a roll over without being terminated?

    Thanks!
    Have people really never heard of the Roth 401k? I mean it was signed into law in 2001 and has been offered since 2006. I’m really troubled if a “Top Contributor” hasn’t heard of a program that’s already been around for 4-9 years.

    • ANSWER:
      Apparently some people missed the “Roth 401k” part. 401k plans vary, so you would need to check with your HR department or plan administrator to see if conversion is possible. Such a conversion would be taxed, added on top of your other income, so if it is possible, you may want to avoid doing too much in a single year which may push you into a higher tax bracket.

      Otherwise you could put as much as you can of new contributions into the Roth 401k, and just put enough in the 401k to keep your tax percentage down, if close to a higher tax bracket.

34. QUESTION:
    Tax Deductions: If I have a 401k at work, can I still open a Roth IRA and claim the deposits as deductions?
    I have a few bucks in the bank and if I can invest it and claim a deduction that would be great, if I can, is there a limit if I make 0,000?
    After reading more, it looks like a Roth IRA isnt tax deductible, but is a standard IRA?

    • ANSWER:
      While a Roth isn’t tax deductible, it grows tax free, which, to me, is a much better deal.

35. QUESTION:
    max 401k vs Roth or IRA ? I do not understand the answere here.?
    All 401k contibutions are pre-tax – many here say only use 401k to company match then use Roth. Why?

    Roth is after tax and limited to k. So how can this be better then puting k +5k pretax into a 401k?. (company match just gravy on first 3%).

    The 401k puts an extra few thousand dollars to work for me – (Pre-tax = tax dollars working for me). Why pay taxes on 4k and then invest in a Roth?

    • ANSWER:
      Lets clear something up here. When you mean after-tax dollars, that mean when you get your paycheck, it is assume that all federal and state taxes were deducted from your income. Whats ever left over is your after-tax dollars. So your 00 won’t be tax when you contribute. When you reach age 59 1/2, all your withdrawals are tax-free.

      In 401(k), your contributions comes before all taxes are applied to your income. For example, lets say you make ,000/year. Normally, you would be tax on this ,000. But if you make contributions to your 401(k), such as ,000, you lower your taxable income to ,000. But you will pay taxes on your 401(k) when you make withdrawals from it.

      I think if people have 401(k) at work, they should also have a Roth IRA. With a Roth IRA, you have more choices of investments to pick from that can match your needs. With a 401(k), you have a limited amount of choices. Plus 401(k) have its own management expenses and fees that affects the rate of return on your investments, while a Roth IRA may only have a small annual custodial fee (usually less than /year).

      When you leave the job after 2010, you can roll the 401(k) into your Roth IRA (for now, you can only roll it over into a Traditional IRA).

36. QUESTION:
    Should I roll over my 401K to a Roth IRA this year?
    I have recently changed companies and am contemplating whether to roll over my 401K balance to a ROTH IRA. I am currently only 23 years old and have about 8,000 dollars vested in my 401K. I currently meet the income limits and would be able to do this, but is it a good idea this year? I know in 2010 the income limit disappears and there is a possibility of delaying the taxes over a couple of years.

    Is it a better idea to move it into a ROTH now or should I wait until 2010? Or should I jsut forego the ROTH and transfer it to a traditional IRA?
    Annual Salary is about 70k so the 8k wont bump me into an additional tax bracket .. So I should do it all this year then correct?

    • ANSWER:
      You first have to roll it over into a Rollover IRA, then you can put it towards a Roth IRA after you pay the taxes owed.

37. QUESTION:
    Roth IRA and 401k contributions?
    Hey, I’ve got a few questions:

    1. I’ve been reading around and still not 100% sure about contributions to a Roth IRA and 401k. The question I have is: can I contribute the maximum to a Roth IRA AND a 401k for the same year? (Assuming I’m within the income limits). It’s not like the combination of the two is limited, so ,000 so I have to split ,000 between the two. They both have separate maxes right? And I can max out both?

    2. What are the tax rates these days? If I bought and sold a stock/option within the same year, what’s the tax rate? Is that rate the same for the dividends?

    3. What’s your opinion, will tax rates be higher in 20- 30- or 40- years time?

    Thanks!!!!!

    • ANSWER:

38. QUESTION:
    How much am I allowed to contribute in my combined 401k and Roth IRA?
    I can’t get a clear answer to this question after reading countless websites.

    I don’t need you to explain what they limits are (16.5K and 5K). I realize there are income thresholds for high earners contributing to a Roth IRA. I also am aware that there are catch ups for the over 50 (that’s not me).

    I simply would like to know: can I contribute 16500 (5000 max in Roth and 11500 in 401k) or 21500 (16500 and 5000)?

    My intention is to contribute, or, max out both. I’m getting mixed answers. I can’t find any clear documentation that states if these limits are independent from one another. Please site your source as I feel I’m not alone in my frustration! Thank you!!

    • ANSWER:
      You can contribute 00 to your ROTH.

      And…you can contribute ,500 to the 401k, regardless of what your company is giving you in the 401k.

      Simple.

39. QUESTION:
    Roth IRA & 401K?
    I am currently contributing to 401K. I am considering opening Roth IRA account. Three questions:

    1. Can I contribute to both 401K and Roth IRA? I haven’t even paid much attention what amount I am contributing to 401K each year
    2. What happens if my contribution is more than the limit requirement amount?
    3. Please verify this statement: Even though you are married, but when opening Roth IRA, you have to open it separately. Cannot be joint Roth IRA.

    • ANSWER:
      Roth IRAs are available to tax payers that meet certain AGI limits. See page 58 of Pub 590 for income details. If your income qualifies,

      1. Yes, you can contribute to both the 401k and the Roth IRA. The 401k is through your employer. The Roth IRA belongs to you. For 2007, the limit was 00 (if you meet the income qualifications, that is), with a limit of 00 if you are age 50 or older. The amount you contribute to your 401k doesn’t impact your ability to make the Roth IRA contribution (although the 401k does have the nice benefit of reducing your AGI so it could have increased your eligibility).

      2. If you contribute more than the 00 amount to your Roth IRA, you’ll need to either withdraw it or “recharacterize” it for the next tax year. Don’t do it. It’s not pretty, and the IRS doesn’t like it. Penalties can apply. Keep in mind that the 00 limit is the total between a traditional IRA and a Roth IRA.

      3. An IRA is an Individual Retirement Arrangement, whether it is traditional or Roth. It is yours and yours alone. Your spouse’s IRA belongs solely to your spouse. There is no such thing as a joint IRA. So yes, your statement is correct.

      A few other points: you have to have earned income. If you are independently wealthy and are living off of stock gains, interest, or other forms of money that is not earned, you’re not eligible. You can contribute up to the amount you earned but not more than the 00 (00 if you’re older). BUT, if you work and your spouse doesn’t, he/she can open an IRA (Roth or traditional), too, based on your income.

      Also, a really cool feature of the Roth IRA: once you’ve made the contribution, you can always get it back out. Because you didn’t deduct it, you can withdraw it with no penalties or taxes. Of course, this is usually not a wise idea because you really need to save for retirement, but it sure takes the risk out of committing four grand!

      Also, you can name whomever you wish to be your beneficiary. The spousal consent for selecting a non-spouse beneficiary only applies to your 401(k). IRA’s don’t have the same beneficiary rules as 401(k)’s.

40. QUESTION:
    Retirement savings option when 401K and Roth contributions are maxed?
    I am a professional in my early 40s. My company allows me to take a portion of my paycheck and contribute it to a 401K and/or Roth IRA which have tax advantages compared to regular non-retirement investments. The max allow contribution for the Roth is ,000 a year and my max total contribution to the retirement funds (401K and/or Roth) is ,000. I have recently hit that limit (max of 16,000 through contributions to both the Roth and 401K) and am looking for other ways to save for retirement with additional money that I am able to contribute.

    My company’s retirement benefits are not great (no fixed pension and no medical coverage – I will be on my own with whatever I can save when I leave), so I want to have quite a bit set aside (particularly given the long-term uncertainity of Social Security and Medicare). I want to be able to put as much toward retirement now while I have the extra income to do so.

    I already have some other non-retirement-specific general investments (moneymarket, stock investments, etc) and I could obviously put more money into those, but I am specifically interested in other investment tools aimed specifically toward retirement and with associated tax or other related advantages to that end.

    Any suggestions of other types of investments or savings options for my situation would be greatly appreciated.

    • ANSWER:
      One of the answer below is wrong — you cannot put 00 each into a Roth and a Traditional IRA. Your limit of 00 per year applies to both combined.

      That said, your next step depends on how much you have to invest and how you want to invest it.

      Generically, I would say start with 00 per year in I-Bonds at savingsbonds.gov.

      Then ,000 in a a regular mutual fund or brokerage account at Vanguard.com. Mutual fund — buy 50% total us stock index fund and 50% total international index fund. Brokerage account — buy shares of the ETF VT.

      Then repeat. You are limited to 00 a year in i-bonds. So above that amount buy TIPS Bonds at auction.

      For more advice on a similar line, try the book:

      The Lazy Person’s Guide to Investing ~ Paul B. Farrell

41. QUESTION:
    re: converting 401k to roth ira, newly married?
    Here is the question. i just left a job that provided a 401k plan and have been contributing to it for several years. i just left the job in june and started a new job where there is no benifits plan, i.e. no 401k. I got married a month ago and now our combined salary will be over 0,000.
    my question is can i still roll over my 401k into a traditional ira and then to a roth ira or am i exempt because our salary puts us over the limit for contributing to a roth ira. any thoughts. i can leave it in the 401k, even though i left the job. i can convert it to simply a traditional ira and leave it there.
    let me know.
    thanks

    • ANSWER:
      You should roll it to a conventional IRA. Right now you’d be making too much to qualify for a roth conversion. Definitely roll it from your old employer, they have such goofy rules with what they can do with your money when you leave.

      In a few years the income limits will be lifted and then you can roll it over to a roth. However, if it’s a decent sum of money I’d consult with a tax advisor. You’ll pay taxes up to your current tax bracket. At 160K that’s a pretty high bracket. If you think you’ll make less upon retirement when you start taking distributions, it would probably be best to wait until then.

42. QUESTION:
    Will a 401K rollover to a Roth IRA count towards the max contrubution for that year for the IRA?
    If I rollover my 401K to a Roth IRA, will the amount I rollover count towards the max contribution limit for that year?

    • ANSWER:
      Nope, it won’t count towards the max contribution limit for that year for the IRA. Just remember that by current laws you have to rollover your 401k into a Traditional IRA first and then to a Roth IRA. Good luck!

43. QUESTION:
    Company does not match 401k contributions & does not have a Roth401k. What to do?
    What else can I do to improve retirement planning considering my employeer doesn’t offer anything helpful? They offer profitsharing but if you leave prior to seven years you get nothing. I do plan on leaving within the seven years, already in my second year.

    Other Facts:
    - No longer contributing to 401k, but contributing the max Roth IRA limit every year, invested in individual stocks returning 10-18%. Maxing Roth for last six years.
    - Saving 30% every pay period w/direct dep. to online savings acct to build up liquid emergency funds & siphoning excess to Brokerage acct for investing.
    - Contributing approx. 6K/year to Brokerage account invested in no -load index funds returning 8 – 15%. Aggressive growth portfolio.
    - Purchased insurance policy to build up cash value and create something for beneficiaries
    - Age: 32, good health/non-smoker, renter (housing in area runs over 800k), no dependants, no liabilities

    What do you advise in my situation? Thank you for your help.
    Thanks for all the input. To clarify further, I have a EIUL (Equity Indexed Universal Life) policy to create an estate for surviving family members/heirs. It tracks the S&P cap @ 12.5% min 1%; can borrow the cash value built up for my retirement if needed. Re: pre-tax exclusion 401k offers, logic behind not to do so is b/c I’m in a low tax bracket below 60K & salary isn’t expected to exceed single contrib limit. Also contrib to 401k are harder to withdraw compared to a Roth; IMO it’s asinine to pay loan on monies that are mine to begin with. I rather be taxed now w/Roth than later b/c I’m in a low bracket now, 40 years from now I will be in a higher one but I probably won’t have the same investments in a Roth, brokerage or 401k. Even if I did fully contribute to the 401k it doesn’t perform as well as my brokerage & Roth. Perhaps I misunderstand the importance of lowering my present tax bracket re: investing and how a 401k can balance my overall assets. Any further ideas greatly apprec.
    Wanted to get a even million EIUL policy but underwriting couldn’t justify it. Result, 500k EIUL & the basic 110k w/work. Honestly as we all know 600k doesn’t really leave much for surviving family. Although in good health I never take it for granted that I’ll live until the mortality stats i.e. 86-94. Hence the need for the life insurance/protection. Re: the co profit sharing digdown… you raise interest’g points, however the primary reason why I’m not concerned is b/c the percentage is really low if under 4 yrs w/the company. digdown… can you cite any sources for your vesting info u suggest? Thanks.

    Lastly, re: the emerg funds I like to view it as what is the largest check I can write OR what is the largest withdrawal I can make today. In case of an emergency the last thing I want to do is shuffle assets and/or liquidate inorder to obtain a sizable amount of funds in a short amount of time 48 hours or less.

    • ANSWER:
      You are doing the right things. Maxxing your Roth IRA is perfect and I am also in favor of the EIUL because it provides you a vehicle in which your investment portion accumulates tax free and an EIUL also allows you to withdraw monies tax free.

      The problem that most folks don’t appreciate with an IRA or 401K is that the trade off for having your initial investments made with pre-tax dollars cause you to have to pay considerably more in taxes on the eventual withdrawls.

      The best way to visualize this is the case of the farmer. Is it better for the farmer to pay taxes on the purchase of his seed or on the value of his harvest? Everyone has a choice pay tax on the “seed” Roth IRA, EIUL, VUL or pay tax on your “harvest” 401K, IRA, 403B. The larger your “harvest” grows the more taxes you pay. Why do you think the government is pushing 401K and IRA? A good clue is in the fact that you MUST beginning withdrawing from your 401K and IRA when you reach 70.5 whether you need to or not. They want their taxes!

44. QUESTION:
    Can you contribute post-tax dollars into your 401k past the IRS pre-tax limits?
    Note: I already fully contributed into my Roth IRA.

    • ANSWER:
      no – they’ll just get returned. if you’ve maxed out 401k and Roth – that’s it – put money in tax free municipal bonds or something

45. QUESTION:
    If i have a 401k from my fulltime job, can i still contribute to a separate roth or traditional IRA?
    Is there a limit to how much i can contribute more money to my IRAs if i make a certain amount at my fulltime job along with my contract work?

    • ANSWER:
      Yes, you can, in fact unless you really need a tax deduction I would recommend contributing to your 401k up to the employer match limit, then putting the rest into and after tax IRA. Although you may only put k in this year and k in next year, it is still after tax income, so you won’t get taxed on it when you take it out.
      0k is the cut off on income, then you may not contribute to a Roth IRA, and you fall under a different set of rules for a 401k.
      The fact that you are even saving says a lot about your concern for your future as well as your intelligence.

46. QUESTION:
    How much I am allowed to contribute to my ROTH IRA as a married couple?
    My husband and I currently have one ROTH IRA under my name.
    I also have 401k at my job, and he has his 401 at his job.
    I am wondering could he also contribute to an ROTH IRA?
    If so, what is the limits for him?

    • ANSWER:
      Depending on your age. If you are over 50, then you can contribute 00 each as long as you have made at least ,0000 in income. If you are under 50, then the max is ,000 each.

      Now if you make more than 166,000 as a couple, then those limits are less.

      If you do make over 6,000 then I would make a trad ira contr and then convert to a roth.

      If you do make over 6,000 I would always talk with a tax advisor on anything that you do, especially when it comes to roths.

47. QUESTION:
    If I contribute the maximuim amount to my 401k in 2007 (,500) Can I still contribute to my Roth IRA?
    Is there a limit to the maximuim amount I can cotribute to both retirement plans?

    • ANSWER:
      Yes, you can max both out.

48. QUESTION:
    Advice needed– 401k or Roth IRA for temp job?
    Hi, I’m hoping to get some advice on how to approach my work 401k plan… I also plan on opening a Roth IRA.

    I am a recent college grad that is starting my first job next week. I am going to work for about 10 months before I start graduate school next year Fall.

    This is my company’s 401k info:
    =======================================================
    All employees are automatically enrolled in the company’s 401(k) Plan:
    • You are eligible for automatic enrollment (2% of your base pay) on your first day of employment. Your first deduction will begin on the first pay period following 30 days of employment.
    • After your first six months, we offer a 100% employer match on employee contributions for the first 3% of eligible compensation, and a 50% match on the next 2% of eligible compensation.
    • You may contribute up to 99% of your gross eligible earnings up to the IRS limit.*
    • We offer 100% immediate vesting – so you don’t have to wait any time period for the money to be yours.
    =======================================================

    QUESTIONS:

    1. I’ve read somewhere that if I’m only going to stay a short time at a company, I should not bother with the 401k and just focus on my Roth IRA. BUT since my company offers 100% immediate vesting, it would be a good idea to contribute to this 401k up until my employer’s match (free money), right?

    2. Since the employer match doesn’t kick in until AFTER my first 6 months, do you think I should not contribute to my 401k until after 6 months (when the employer match finally kicks in)? Is this allowed?

    3. How does this sound?
    FIRST 6 MONTHS: Contribute only to my Roth IRA and not contribute to my 401k (since no employer match)
    AFTER 6 MONTHS: Since employer match finally kicks in, contribute to 401k up until max employer match. Then contribute rest of money to Roth IRA.

    • ANSWER:
      Step 1: Contribute 5% of your salary to the 401k so you are in and get the full match.

      Step 2: Open an IRA and max out the annual contribution

      Step 3: Contribute more than 5% to the 401(k) as your budget allows.

49. QUESTION:
    I’m a single filer who has contributed ,000 to a Roth IRA and ,500 to an employer sponsored 401k in 2010.?
    I’m a single filer who has contributed ,000 to a Roth IRA and ,500 to an employer sponsored 401k in 2010. My salary will be 45K in 2010. Does anybody know if I’ve surpassed any contribution limits? Also, can I rollover that ,500 into a rollover IRA when I leave my present employer this calendar year? If so, can I roll it over into a Roth IRA with exceeding any limits?
    Thanks!

    • ANSWER:
      You’re fine. I made the exact same contributions.

      You can roll your 401k into a Traditional IRA without paying taxes. If you roll it into a Roth IRA, you will have pay ordinary income taxes on the balance as of the date of the roll over.

      Rollovers do not count towards annual contribution limits.

50. QUESTION:
    Should I max out my Roth IRA or my mutual fund first?
    I have a Roth IRA with Edward Jones and I am saving up for a mutual fund through Vanguard. I am also saving money in my I series bond, 401K as well as a TSP. Would it make more sense to max out the Roth first due to its annual contribution limits? Or would the no-limit mutual fund be a better idea?

    • ANSWER: