How Can I Contribute to Two Roths?

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How Can I Contribute to Two Roths?

Question: I’ve read your advice to contribute to my Roth IRA but I already contribute to a Roth through my employment. Why are you telling me to contribute another $5,500 to my Roth?

The terminology is a little confusing, but you are allowed to have and contribute to individual retirement accounts, such as a traditional IRA or a Roth IRA, and you are also allowed to have and contribute to employment-related retirement accounts.

The accounts are held and managed separately. The account through your employer is probably a 401(k) or 403(b) or possibly some other kind of account, and you set it up by talking to your company’s Human Resources (HR) department.

An employer 401(k) or 403(b) (whether it is a traditional or Roth) is handled through your employer and whichever custodian they have chosen to house the assets. You are eligible to contribute because you are employed by their company.

Not every employer’s retirement plan offers a Roth option, so congratulations to you that your employer allows you to put away money in a place where it will never be taxed again!

You as the employee are allowed to put post-tax money into your Roth 401(k) or 403(b). If your employer matches any portion of that, their match goes in as pre-tax money, just like contributions to traditional IRAs.

The IRS allows you to contribute separately to your individually held and managed retirement account. There are different contribution limits for each type of account.

For 2015, the limits for employer-sponsored plans (traditional or Roth) are $18,000 (plus an extra $6,000 if you are over age 50). For your individual Roth IRA, the limit is $5,500 (plus an extra $1,000 if you are over age 50).

While the money you put into your Roth IRAs does not lower your taxable income, between the two types of accounts you can stash away $23,500 per year toward your retirement. If you invest these accounts, they will likely grow to be worth much, much more when you retire.

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Wealth Manager

Austin Fey is a Wealth Manager at Marotta Wealth Management, specializing in charitable giving and asset allocations. She is a regular contributor to our Marotta On Money articles, often giving advice to those just getting started in finance.