Can I contribute to both a 401k, a Roth IRA?

Contribution limits to your 401k are different than for your Roth IRA. Contributing to both your 401k and Roth IRA at the same time is prudent retirement planning.

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Contributing to a 401(k) and a Roth IRA

Powerpoint slides on a superior retirement planning strategy called Roth IRA on Roids which allows for tax-free distributions, tax-free growth, guaranteed principal and guarateed death benefits.It is never too late to start saving for retirement. No matter what age you are, you have options available that will help you prepare for the years ahead. Many people choose to open an IRA retirement account, either a traditional or a Roth IRA. In recent years, more people are choosing a Roth account because it provides a source of tax-free income upon retirement. If you already have an open Roth IRA account, you are on your way to saving for retirement. Even though you may already have a retirement plan in place, you do not have to stop there. Often times, an employer will offer a company sponsored retirement plan, usually a 401(k). This leaves people asking if they can contribute to both a 401(k) and a Roth IRA. In short, the answer is yes. Actually, it is advised to do so if you have that option because the contribution limits tend to be relatively small for most savers. In fact, if you are interested in saving even more for retirement, you should consider a Roth IRA on Roids account, in addition to contributing to your 401(k) and Roth IRA, as it offers limitless, tax-free retirement contributions.

Contribute to Both 401(k) and Roth IRA: Know Your Limits

The annual maximum contribution limits are different for each type of plan. In 2009, the maximum amount that can be contributed to a 401(k) plan is $16,500 if you are under the age of 50. If you are older than 50, you are allowed an additional $5,500 per year as a catch-up amount. It should be noted that not every employer will allow you to use a catch-up contribution. If you are over 50 and currently have a 401(k) plan with your employer, it is recommended you find out if you are allowed that extra amount. Financial advisors recommend that you contribute as much as you can afford into your 401(k) plan.

These figures are for your contributions only. They do not include any contribution made to the account by your employer. The contribution limits for a 401(k) plan can change each year, so make sure you are always aware of what the limits are.

The Roth IRA contribution limits are completely different from a 401(k). In fact, the limit is significantly less. Currently, in 2009, anyone under the age of 50 is allowed a maximum of $5,000 per year. There is again a catch-up amount for those who are over 50. This amount is $1,000, totalling $6,000 per year.

Contributing to a 401(k) and a Roth IRA is Advantageous

If you have a Roth IRA retirement account and have the option of signing up for a 401(k) plan in addition, it is highly suggested to do so. At first, this may seem like you are taking a huge chunk out of your pay. While it is recommended to contribute the maximum to both accounts, this is not a requirement. However, despite your earnings, you should make contributions to both accounts if you have that option. A 401(k) plan is a powerful tool. Since it usually involves an employer match, the amount in the account can amass quickly, especially given the higher maximum contribution limits. A Roth IRA, even though the limits are low, is one way to provide tax-free IRA retirement income when you reach the age of retirement.

Each retirement plan has its pros and cons, but if you are able to do it, you can contribute to both a 401(k) and a Roth IRA. Both of these accounts are critical to the proper planning for retirement. Again, it is never too late to begin saving, but the sooner you start, the more money you will have available when you reach retirement. IRA and retirement plan investing are very important tools. If you are able to contribute to more than one type of retirement account, you should. It may seem like a long way off, but retirement comes quickly, and the better you prepare and save now, the better your financial situation will be later in life.

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Rocco Beatrice, CPA, MST (Master of Science in Taxation), MBA (Master of Business Administration), BSBA (Management/Accounting), CWPP (Certified Wealth Preservation Planner), CMMB (Certified Mortgage Broker), CAPP (Certified Asset Protection Planner), Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an asset protection, award-winning trust, estate planning and tax expert.

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