Can you contribute to both a tax deferred 401K plan and a Roth IRA?
As a teen, you’re really thinking ahead to retirement. This is so great!
Yes, you can participate in an employer-sponsored retirement plan (401K, 403b, etc.) and contribute to a Roth IRA if your income qualifies (see below). One is funded with your pre-tax dollars; the other is funded with your after-tax dollars.
401K, 403b, and other tax deferred retirement programs allow you to save pre-tax dollars. Contributing to one of these plans reduces how much tax you have to pay during the years you add money to the account. Since taxes are not paid when you invest the money, you will pay taxes when the money is withdrawn. Ideally, the money is withdrawn when a person is retired and has less taxable income.
- Roth IRAs are funded with after-tax dollars. Interest earnings are tax-free if withdrawals are made after age 59½. Most people can qualify for a Roth IRA. The only people who can’t qualify for a Roth IRA are single filers with income of $99,000 or more and joint filers with income over $156,000.
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