I have had a traditional 401k account. This year I opened a new Roth 401k and began to contribute to my Roth 401k. I did not convert my traditional 401k to the new Roth 401. So I should have two retirement accounts, right? Can I contribute to both of my traditional 401k and Roth 401 or I can only choose one to make a contribution?
By the way, will the contribution limits $16500 be doubled in 2010 if one can contribute to both of his traditional 401k and Roth 401?
Yes, you can contribute to both. An individual may make an annual nondeductible contribution to a Roth IRA that may not exceed the smaller of the maximum allowable annual IRA contribution or 100% of the individual's earned income for that year, minus the total of all contributions for that tax-year to all other individual retirement plans (other than Education IRAs) owned by that person.
What this means is that your total contributions for the tax-year to a traditional IRA and a Roth IRA may not exceed the total contribution allowed for that year. Because of the Roth IRA phase-out rules, "splitting" your allowable IRA contribution into a traditional IRA and a Roth IRA may be your only option if you want to make a full contribution for that year.
A couple of distinctions you should note are that you may contribute to a Roth IRA and a SEP, SIMPLE, and/or Education IRA at the same time. The annual contribution limit on IRAs is only applicable to the combination of traditional and Roth IRAs. So if you are in a situation where you are able to fully fund a Roth IRA and a SEP, SIMPLE, and/or Education IRA, the law allows you to do so.
Remember also that you may contribute to a Roth IRA even if you are covered by a company retirement (pension/401(k)/profit sharing) plan.
I would strongly suggest you consult with a CPA or tax attorney before deciding what to do. Good luck!
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.
Yes, you can contribute to both plans. However, you cannot exceed the overall limit for qualified plans. No, the limits are not doubled.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
Employment / Labor Attorney
Yes, you can contribute to both, but it depends on how the two are set up. If the 401(K) and ROTH IRA are completely separate accounts, you are limited to contributing $16,500 to the 401(K), said contributions being TAX DEFERRED until retirement; contributions to your ROTH IRA are subject to income caps, depending on whether you are single or married, but grow TAX FREE.
If, on the other hand, the ROTH IRA is PART OF your traditional 401k, you can still contribute to both, subject to the $16,500 annual limit, but there is no income cap for contributions to the ROTH IRA. No doubling of contributions in either situation. You should confirm this information with your tax preparer or investment advisor.
This posting does not create an attorney-client relationship.