Investing your money in a 401 (k) plan and a Roth IRA offers the perfect combination of tax savings, some now and others in the future. Roth IRA savings are earned with after-tax money, so there's no conflict between this type of plan and a traditional 401 (k) plan, which is funded with pre-tax money. You can have a 401 (k) and a Roth IRA at the same time. Contributing to both is not only allowed, but it can be an effective retirement savings strategy.
However, there are some income and contribution limits that determine your eligibility to contribute to both types of accounts. Choosing a Roth 401 (k) or a traditional 401 (k) may not be an either-or decision. If your employer offers both options, you can contribute to a Roth 401 (k) and a traditional 401 (k). Your employer can also match both options, but the funds from your traditional 401 (k) plan go directly to your account, while with a Roth 401 (k) plan, they are deposited in a separate tax-deferred account.
Many, if not most, retired investors can contribute to a Roth IRA and a 401 (k) at the same time. Yes, you can contribute to a Roth IRA and a 401 (k) at the same time. This type of Roth 401 (k) account is different from Roth IRA contributions that your employer may provide or from Roth IRAs that you can open with a brokerage agency on your own. This involves making a non-deductible contribution to a traditional IRA and converting those funds into a Roth IRA.
You'll also learn how much you can contribute to that Roth IRA account, how to avoid eligibility restrictions, the flexibility of saving on a Roth IRA compared to other individual retirement accounts, and the benefits of saving on both a 401 (k) and a Roth IRA. Therefore, a Roth IRA can be a good vehicle for saving for pre-retirement goals if you wouldn't otherwise contribute to an IRA.