Employer sponsored Roth 401k and an IRA

[Time2]

My son will max out his employer sponsored Roth 401K, Can he also have an IRA for the same year?



Hmm, I just found this in Investopedia.
"One financial strategy, for those who want the max in tax-advantaged savings: open both types of Roth accounts. Between the two, you can invest up to $25,500 in 2021 ($26,500 for 2022) into a Roth 401(k) and Roth IRA—or even more, if you've hit the age-50 threshold by year's end."


If you find more supporting evidence, please post.

 

[cathy63]

Generally the answer is yes, he can contribute to both an IRA and a Roth 401(k).

The complications come up when you try figure out whether the IRA contribution is deductible or not and whether it's better for him to put money in a tIRA or a Roth IRA. The "best" answer depends on whether he's over or under 50, whether he's married or not, his (and his spouse's) AGI, and whether he already has an IRA with pre-tax contributions.

 

[Out-to-Lunch]

And, of course, the ability to contribute directly to a Roth IRA depends on your AGI. If you make too much, you are not allowed to contribute directly. https://investor.vanguard.com/investor-resources-education/iras/roth-ira-income-limits

 

[Time2]

He is nowhere near the limits.

He's 28 yrs old, single and making about $50k.

Out-To-Lunch brought up another question, Can you max out an employer sponsored 401k-Roth and have a personal Roth?

 

[Out-to-Lunch]

Oh, gosh, I didn't know it was another question! I read a "Roth" in your question before the term "IRA" that was not there!

 

[cathy63]

He is nowhere near the limits.

He's 28 yrs old, single and making about $50k.

Out-To-Lunch brought up another question, Can you max out an employer sponsored 401k-Roth and have a personal Roth?

He should max out the Roth 401(k) provided by his employer and he should open a personal Roth IRA and max that out if he's able to. He's allowed to do both at the same time.

The standard deduction for a single person under age 65 in 2022 is $12,950; so if his AGI will be $50K, his taxable income will be $37,050. That's in the 12% bracket. It's unlikely that he'll be in the 12% bracket when he wants to withdraw those funds, so it's better to pay the tax now and let it grow tax-free as long as possible.

Also, if he needs the $6K contribution for an emergency later on, he can always withdraw that and leave the earnings to keep growing.