It's possible to have a Roth IRA and a Roth 401 (k) at the same time. However, keep in mind that your employer must offer a Roth 401 (k) in order to participate. Meanwhile, anyone with earned income (or any spouse whose partner has earned income) can open an IRA, taking into account established income limits. You can have a 401 (k) and a Roth IRA at the same time.
Contributing to both is not only allowed, but it can be an effective retirement savings strategy. However, there are some income and contribution limits that determine your eligibility to contribute to both types of accounts. Yes, you can contribute to a Roth IRA and a 401 (k) at the same time. Many, if not most, retired investors can contribute to a Roth IRA and a 401 (k) at the same time.
Assuming you meet the eligibility requirements, contributing to both a 401 (k) and a Roth IRA can provide you with both short- and long-term tax advantages. Meanwhile, contributions to a Roth IRA are always made after paying income taxes, and qualified withdrawals during retirement are always tax-exempt. Contributing to both a 401 (k) and a Roth IRA allows you to maximize your retirement savings and benefit from tax advantages. If your employer matches 401 (k) plan contributions, it's usually wise to make the most of them before contributing to a Roth IRA.
If you want to make contributions to both a 401 (k) and a Roth IRA account, you must first ensure that you can contribute to both based on availability and income requirements. Other benefits of a Roth IRA include being able to withdraw contributions (not profits) without penalty and not being subject to the required minimum distributions, as is the case with other retirement accounts. Combining a 401 (k) and a Roth IRA can help you get tax and estate planning benefits at different points in your financial journey. A Roth IRA is a tax-advantaged account that is funded by contributions made with money that has already been taxed.
The great thing about an IRA (whether Roth or traditional) is that you can open it at almost any discount broker, with no account fees and with access to a wide variety of low-cost investments. The sooner you can start saving for retirement, the better, but when you start, it may not be feasible to save a lot of money in both a 401 (k) and a Roth IRA. You can use the IRS interactive tax assistant tool to see if the withdrawal from your Roth IRA is eligible and tax-exempt. While saving on a Roth IRA doesn't offer you any tax advantage today, future benefits can add up.
Except for some scenarios, such as buying a home for the first time or college expenses, Roth IRAs have tax implications if funds are withdrawn within five years of the initial contribution. To avoid these mandatory distributions and keep your money invested, once you leave your job, you can transfer your Roth 401 (k) to a Roth IRA, which is not subject to RMDs.