Question of the Week: Can I contribute to both a 401K and IRA/ROTH in the same year?

It’s a straightforward and simple question; wouldn’t it be wonderful if the answer was simple and straightforward?

It’s not but I’ll do my best to make this easy for you!

By the time many individuals reach retirement age, they’ve accumulated a bit of a smorgasbord of retirement plans. Changing jobs with the accompanying rollover can complicate life a bit and many of my clients are unsure how the rules work when they have numerous retirement plans.

Here goes: For 2017, your total contributions to all your traditional and Roth IRAs cannot be more than:

* $5,500 ($6,500 if you’re age 50 or older),

* Your taxable compensation for the year, if your compensation was less than this dollar limit.

Generally speaking, the Roth may also work but, as you know, there are a couple of requirements that affect your ability to make a Roth contribution.

* You must have earned income

* Your income must be under a certain amount.

The income limits are detailed here.

Remember that it’s a combined amount for the IRA and Roth IRA. The aggregate is $5,500 or ($6,500) if you’re age 50 or older. There is no double-dipping.

If you’re contributing to a 401(k) or other employer plan, you can open a traditional IRA as well, but you may or may not be able to deduct that chunk of savings from your taxes, depending on your income.

Still, it does let you save more, and the gains grow tax-deferred.

This chart from IRS.GOV spells out the limits.

The key number here is Modified AGI (MAGI). The chart below ( spells out how MAGI is calculated. For many taxpayers (especially those who aren’t collecting social security) the add backs are mostly inconsequential.

My guidance to this question is twofold.

  1. If you’re eligible for an employer-sponsored 401K plan, contribute whatever is necessary to get the FREE MONEY. (Do not leave that on the table.). Other than that see number #2.

  1. I’d sock away what you can in the Roth account if you qualify. In most cases, I counsel future retirees that having the certainty of Roth money growing tax-free is more appealing than the current year tax deduction - and paying taxes down the road when I feel that tax rates will be considerably higher. Generally speaking, that’s my advice but there are exceptions depending on an individual’s tax situation. (See below: Why do I say “generally speaking?”)

The government doesn’t give us middle-incomers very much so get while the getting is good. The Roth is the way to go.

That’s just the way it works!

Why do I say “generally speaking”? Well, generally speaking every situation is different. Every investor has different goals and a unique situation. No two scenarios are the same and it’s wrong to dispense financial advice for something as critical as your RETIREMENT without careful analysis. For best results, speak to a tax advisor, retirement specialist or someone who has attained the RICP designation. A Retirement Income Certification Professional focuses on transitioning from asset accumulation to creating a sustainable livelihood in retirement. For greater peace of mind and a secure and (hopefully) tax-free retirement, reach out to me by clicking here.

Required disclosures: Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and (Strataxa Retirement Advisors, LLC) are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.

Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.