Confused about Roth 401(k) and Roth IRA contributions in the same year

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neatp
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Confused about Roth 401(k) and Roth IRA contributions in the same year

Post by neatp » Sat Sep 22, 2018 3:10 pm

Hi Bogleheads,

I've read a lot of confusing things on the internet about this and I wanted to get some clarity. I plan on making the maximum contribution to my Roth 401(k) this year (which is $18,500 I believe). Can I also contribute $5500 to my Roth IRA? I'm going to be well under the income limit for the Roth IRA this year since I'll have only worked from September to December.

Thanks!

livesoft
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Re: Confused about Roth 401(k) and Roth IRA contributions in the same year

Post by livesoft » Sat Sep 22, 2018 3:17 pm

Yes, you can, but let me clarify your question please.

If you make $18,500 + $5,500 as compensation, then it is easy to see. But maybe you are asking the following:

If I make only $18,500 this year and my employer (or myself if self-employed), can I contribute not only $18,500 to my Roth 401(k), but also $5,500 to my Roth IRA? That is, can I use the some of the same compensation twice in these contribution limit formulas?
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samsoes
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Re: Confused about Roth 401(k) and Roth IRA contributions in the same year

Post by samsoes » Sat Sep 22, 2018 7:39 pm

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samsoes
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Re: Confused about Roth 401(k) and Roth IRA contributions in the same year

Post by samsoes » Sat Sep 22, 2018 7:41 pm

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Alan S.
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Re: Confused about Roth 401(k) and Roth IRA contributions in the same year

Post by Alan S. » Sat Sep 22, 2018 8:10 pm

livesoft wrote:
Sat Sep 22, 2018 3:17 pm
Yes, you can, but let me clarify your question please.

If you make $18,500 + $5,500 as compensation, then it is easy to see. But maybe you are asking the following:

If I make only $18,500 this year and my employer (or myself if self-employed), can I contribute not only $18,500 to my Roth 401(k), but also $5,500 to my Roth IRA? That is, can I use the some of the same compensation twice in these contribution limit formulas?
The answer to the latter question is that you COULD make the full Roth IRA contribution because your W-2 wages would not be reduced by your Roth 401k contributions.

That said, if your gross income was 18,500, you could not use the entire amount for Roth 401k deferrals because your SS/Medicare, health insurance premiums, and other benefits you pay for would reduce the amount remaining for Roth 401k contributions. Your taxes would also reduce your deferrals unless you declared yourself exempt or claimed a ton of exemptions.

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celia
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Re: Confused about Roth 401(k) and Roth IRA contributions in the same year

Post by celia » Sat Sep 22, 2018 8:14 pm

Although you're planning on saving $18,500 in your 401K, you might not get the full employer match, if the employer expects the money to be contributed evenly throughout the year. You might only get 1/3 of it since you are only working 1/3 of the year. Check with HR/payroll for clarification if this is important to you.

Good thinking about using the Roth in a low-income tax year (I assume) !

neatp
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Re: Confused about Roth 401(k) and Roth IRA contributions in the same year

Post by neatp » Sun Sep 23, 2018 4:43 am

Thank you all. I estimate that I will make around $50,000 this year, so my income will be well above $18,500. Glad I can contribute to both. I also have no employer match, so that's not a consideration for me.

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