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5 Key Roth Retirement Account Rules You Should Know

Got questions about the ins and outs of using a Roth retirement account? Money Girl will clear your confusion with answers to listener questions about the Roth five-year rule, who qualifies for a Roth, and more.

By
Laura Adams, MBA,
Episode #591
5 Key Roth Retirement Rules You Should Know

4. Roth accounts at work don’t have income limits.

A workplace Roth and a Roth IRA are very similar; however, there are some important differences to know. First, anyone with income can use a Roth IRA. But you can only have a Roth 401(k) or a Roth 403(b) if it’s offered by your employer.

A huge, often-overlooked benefit of having a Roth workplace plan or Roth solo 401(k) is that there are no annual income limits to qualify. With a Roth IRA, you can’t contribute if your income exceeds certain amounts for your tax filing status (such as single or married filing jointly). I’ll give you the limits in a moment.

A huge, often-overlooked benefit of having a Roth workplace plan or Roth solo 401(k) is that there are no annual income limits to qualify. With a Roth IRA, you can’t contribute if your income exceeds certain amounts for your tax filing status (such as single or married filing jointly).

But anyone can contribute to a Roth 401(k) or 403(b), regardless of how much money you make! So, the answer to David’s question is that he qualifies for a Roth 401(k) at work no matter how much or little he earns. David could contribute solely to the Roth 401(k) or split contributions between the Roth and his traditional 401(k).

If you’re wondering, here are the 2019 income limits to qualify for a Roth IRA:

If you file taxes as a single and your modified adjusted gross income is higher than $137,000, you cannot contribute to a Roth IRA. When you earn from $122,000 to $137,000, your contribution total is reduced.

If you’re married and file taxes jointly, you cannot contribute to a Roth IRA when your household’s joint modified adjusted gross income exceeds $203,000. And when you earn from $193,000 to $202,000, your contribution total is reduced.

See Also: 10 IRA Facts Everyone Should Know

5. You can have multiple retirement accounts.

Having a Roth IRA or a Roth at work is terrific—but don’t stop there. You can easily pair them with other Roth or traditional accounts, if you don’t exceed the total annual contribution limits.

For 2019, you can contribute up to $19,000, or $25,000 if you’re over age 50, to a workplace retirement plan. The annual limit is lower for a traditional or Roth IRA: $6,000, or $7,000 if you’re over 50.

So, that means you could max out a Roth 401k at work and contribute to the maximum amount to a Roth IRA or a traditional IRA. You could also split your contributions between traditional and Roth accounts in any proportion you like. For instance, you could contribute $10,000 to a traditional 401(k) and $9,000 to a Roth 401(k). Or $3,000 to a traditional IRA and $3,000 to a Roth IRA if you’re under age 50 and don’t earn too much to get locked out of a Roth IRA.

Depending on your income, your tax deduction for a traditional IRA may be reduced or eliminated when you or a spouse also have a traditional workplace retirement plan where no matter your income, you can still contribute.

But there’s no conflict with a Roth IRA because those contributions are not tax-deductible. So, as long as you don’t earn too much to contribute to a Roth IRA in the first place, you can max out both a Roth IRA and a workplace retirement plan every year and get 100% of the tax benefit.

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