Here’s why you should use a 401(k) and Roth IRA.

If you want to save extra money for retirement, opening a Roth IRA may be a good idea. And the good news is you don’t have to choose between a Roth IRA and a 401(k), you can use both. Even if you already contribute to a 401(k) at work, you can still receive tax-free investment growth (and tax-free retirement income) with a Roth IRA.

But there are limits. If you already have a 401(k) or other employer retirement plan, your income must be below a certain level to qualify for a Roth IRA.

Let’s take a look at some reasons to use a Roth IRA in addition to a 401(k) and who can use this retirement savings strategy.

Who Can Contribute Money to Roth IRAs and 401(k)s?

If you have a 401(k) at work, you should definitely use that 401(k), especially if you get an employer match on some of your contributions. Get full employer match. And if you’re a high earner in a higher tax bracket, you might consider maxing out your 401(k) to get the biggest tax deduction on your retirement savings.

But don’t assume that your 401(k) is the end of your retirement planning. Depending on your income and filing status, you may be able to contribute additional retirement savings to a Roth IRA. And Roth IRAs have some special tax benefits that may make them a good fit for your personal finances and long-term investment goals.

Here are some situations where opening a Roth IRA may be a good choice, even if you already have a 401(k):

• I’ve maxed out my 401(k) and would like to save additional money for retirement.
• Your employer does not offer a 401(k) match or your employer contributions are not fully vested. This may make a 401(k) less attractive as a retirement savings option.
• Your 401(k) doesn’t have good investment options or is charged excessive fees. A Roth IRA allows you to control your investments and choose your broker.
• I want an additional retirement savings account that isn’t connected to my employer.
• Are married (filing jointly) to a spouse who does not have a job or whose job does not provide a retirement plan;

How to Qualify for a Roth IRA If You Already Have a 401(k)

Roth IRAs offer several special tax advantages, such as tax-free growth and tax-free earnings in retirement. Because of these tax advantages, the IRS does not allow some high earners to open a Roth IRA. To qualify for an IRA, your income must fall below a certain threshold.

Make sure you understand the new 401(k) and IRA contribution limits for 2024. According to the IRS website:

• The maximum contribution limit for 401(k) plans is $23,000. If you’re age 50 or older, you can contribute up to an additional $7,500 to your 401(k).
• The maximum annual contribution limit for an IRA (a combination of traditional IRA and Roth IRA) is $7,000. If you’re 50 or older, you can contribute up to an additional $1,000 in 2024. This $7,000/$8,000 limit includes all contributions to IRAs (Roth and Traditional). For example, you could put half of your $7,000 limit into a Roth and half into a Traditional IRA.

However, depending on your income and filing status, you may not be able to use a Roth IRA. Here are the updated IRS rules for 2024 on who can get a Roth IRA for several tax brackets.

single filer

If you’re single and your adjusted gross income (AGI) is less than $146,000, you can put money into a Roth IRA up to the 2024 contribution limit ($7,000, or $8,000 if you’re 50 or older). . If your modified AGI is in the “phaseout range” of $146,000 to $161,000, you can partially contribute to a Roth IRA. If your modified AGI is higher than $161,000, you cannot contribute to a Roth IRA in 2024.

Married and filing jointly

If you’re married filing jointly, you can contribute the full amount to a Roth IRA in 2024 as long as your modified AGI is less than $230,000. Once your modified AGI reaches the “phaseout range” of $230,000-$240,000, you can partially contribute to a Roth IRA. And, if your modified AGI is greater than $240,000, you cannot contribute to a Roth IRA in 2024.

As a married couple, you can both contribute to separate Roth IRAs if your income qualifies. For example, if a married couple ages 44 and 45 files jointly and has an adjusted AGI of $200,000, they can contribute a total of $14,000 ($7,000 per spouse) to a Roth IRA in 2024.

What happens if my modified AGI is in phaseout scope? That means you can put some money into a Roth IRA in 2024, but not the full amount, up to the $7,000 (or $8,000) limit. The phaseout calculations are a bit complicated. The higher your modified AGI, the less you can put into a Roth. Fortunately, you don’t have to go alone. that much best tax software We can tell you whether you can contribute to a Roth IRA.

gist: Investing money in Roth IRAs and 401(k)s can be a great strategy to increase your retirement savings. Unless your income is very high, you may be eligible to put money into a Roth IRA in 2024.

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