How to Use a Roth IRA and Roth 401(k) at the Same Time

Dear Dr. Don, 

I participate in a Roth 401(k) at work with employer matching contributions. I also have a Roth individual retirement account through a financial company. If I contribute $5,500 to my work's 401(k), may I also save $5,500 in my personal Roth IRA, or would I be limited to $5,500 in total contributions between the two?

As I understand it, I can contribute up to $17,500 to my 401(k) per year and $5,500 to my personal Roth IRA.

Thanks, -- Matt Morass

Dear Matt,

Having a Roth 401(k) plan at work doesn't limit your ability to contribute to your personal Roth IRA. Depending on your income, however, you may have to fund a traditional IRA and then do a Roth IRA conversion.

You can always contribute to a traditional IRA up to the annual contribution limits as long as you have sufficient compensation or salary. There are income limits dictating whether you can contribute to a Roth IRA. The limits depend on your filing status and your modified adjusted gross income, or MAGI. If you can't contribute directly to a Roth IRA, then you can contribute to a traditional IRA and then perform a Roth IRA conversion.

Since your employer has a retirement plan in place, there may also be limits on making tax-deductible contributions to a traditional IRA. This depends on your filing status and MAGI.

At a minimum, I like to see people contribute to their retirement plan at work up to the limit of the company's matching program, if there is one. With a Roth 401(k) plan, your contributions are made with after-tax dollars. But the qualified distributions are tax-free, which can be nice when you are retired. The company-matching contributions go into a separate pretax account. Of course, traditional 401(k) accounts are taxable when payments are distributed out of the plan.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving and Investing," "Senior Living" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

Copyright 2014, Bankrate Inc.