My son has a Roth IRA and no employer-offered retirement accounts. In January he will start a new job that offers a 401(k). The maximum contribution to a Roth IRA is $6000, and the max for a 401(k) will be $20,500. Can he contribute the maximum amount to both next year? Or is there some global limit?
It depends on his income
Have him call the bank/investment firm running the Roth IRA and ask them. I have a Roth IRA and anytime I ask them something like this they seem to have the answer off the top-of-their-heads. I think they get asked these things a lot so they have ready answers.
My WAG (with some research) is the restrictions on each investment vehicle are unique to that vehicle. They do not interact so, go max in each if you want. That said, ask the people who really know (your tax guy/gal would be another good source).
He can contribute the maximum to the 401(k) with no strings attached. The Roth IRA follows a different set of rules though - if his modified adjusted gross income (MAGI), which is the income after taking into account certain tax deductions, is over a certain limit, then the amount he is allowed to contribute is either reduced or entirely disallowed, based on how much his MAGI exceeds the limits.
The limits are set by the IRS, and recalculated near the end of each year, so taxpayers aren’t caught with their pants down in the upcoming year. The limits also vary depending on whether your son is single, married filing separately, or married filing jointly. The site I linked to in the previous paragraph gives a breakdown of how exactly the limits change based on MAGI and marriage status.
Unadjusted gross income will be in the range $55-65K. I’ll check the links above.
Thought I’d piggyback my questions on this current thread.
If I have both a Roth IRA I set up for myself years ago and an employee funded 401k Roth, is the annual contribution limit a combination of both of these?
And is the deadline for 2021 contributions year end, or April 15, 2022?
I asked my banker about this a few days ago and he told me I could contribute to my 2021 Roth IRA until the day I filed my taxes (so, April 15, 2022 at the latest but depends when you file).
That said, remember this is an internet board. I am not an expert. Ask your tax person to be sure.
Rules for 401k plans and IRAs are completely separate and do not intersect. This is true whether your 401k plan is a traditional or Roth plan, and whether your IRA is a traditional IRA or a Roth IRA.
The limits are separate and do not impact each other (although it is possible that contributing to a traditional 401k can lower the income amount used to determine how much you can contribute to an IRA.)
The dates for making contributions are also completely separate. Almost all 401k plans are based on the calendar year, and contributions must be made by Dec. 31.
The IRA deadline is the tax deadline for the following year (this is because contribution limits are determined by income, and you may not know your income until the year ends). You can contribute to an IRA for the previous year before your file your taxes; however if your contribution impacts your taxes, you might then need to amend them.