I’m eventually going to have to consult an accountant, I think, but I thought I’d run this question past any experts here to see if it’s a simple slam-dunk (to anyone but me!).
For me, the yearly contribution limit to a Roth is $6000. I have a Roth held within my employer’s 401k, and I also opened one at my brokerage. Because I’m a dolt, I accidentally contributed to both in 2010 and the total amount went over the limit.
However, does the contribution limit rule apply across both Roths, or just to any held outside an employer-sponsored 401K?
Do you mean a Roth 401(k)?
My understanding is that Roth 401(k) and Roth IRAs are independent. The limit for a Roth 401(k) is something like 16000 which doesn’t impact the limit on Roth IRA.
There’s no slam-dunk answer without getting a lot of the information from your tax return and the setup of the 401k. As stated, a Roth 401k should be separate, but eligibility for a 401k changes the dollar values that make you eligible for an individual Roth. If your income is too high, then you can’t make Roth contributions.
If there are two individual Roth accounts, then the $6000 limit does apply across all Roth accounts.
If you did contribute too much, it may be possible to avoid penalties by withdrawing or recharacterizing the contributions after the fact. You can ask your bank about that.
I think you got it right. Sorry I wasn’t clear; I have a Roth 401(k) with my employer, and I also hold a Roth IRA in a brokerage account. In 2010, I made almost $6,000 in contributions to the brokerage-held Roth IRA, forgetting that I was also making automatic contributions to the Roth 401(k). I knew about the $6,000 limit on the outside account, but that was all I knew.
Based on your clarifying the issue above, I called my brokerage and put the question to them. Their answer is that the two Roths are independent from each other as regards contribution limits. You’re right; it’s about $16,500 per year contribution limit in a Roth 401(k) ($22,000 or so if you’re over 50), and this does not affect the limit on an outside Roth IRA, and vice versa. Whew.
Having a Roth 401k, regular 401k, or any other type of employer retirement plan has no effect on your eligibility to make a contribution to either a Roth or Traditional IRA. It may, however, have an impact on whether you are eligible to deduct a Traditional IRA contribution.
You are correct that if your income is too high, you cannot make a contribution directly to a Roth IRA account. The limit on Modified Adjusted Gross Incomein 2010 was $177,000 for Married Filing Jointly, $10,000 for Married Filing Separately (if you lived with your spouse), and $120,000 for others. These limits are the same whether or not you have an employer retirement plan. If you exceed those limits and you are under age 70.5, you can circumvent them by making a contribution to a Traditional IRA and immediately converting it. (This may have other impacts if you have other before-tax money in any Traditional IRA.)