Under what circumstances can I contribute to BOTH a taxable and a tax-deferred retirement vehicle?

Question

Basically I want to know if there are any requirements (eg: salary maximum, etc) to being able to contribute to both a roth IRA and a 401k (or in my case a 403b). I've heard that once you reach a certain salary you can either contribute to a pre-tax OR a roth but not both.

Answer 1

Whether or not you have a 401k or 403b does not affect your eligibility to contribute to a Roth IRA. The only requirement is that you have earned income below certain limits.

If you want to contribute to a Roth IRA, you have to have (modified AGI) less than

$160K for Married Filing Jointly or Head of Household
$110K for Single
$10K for Married Filing Separately.

At these income levels or higher, no contribution is allowed. The contribution phaseout ranges are between

$150K-$160K for Married Filing Jointly or Head of Household
$95K-$110K for Single
$0 - $10,000 for Married Filing Separately.

There is a worksheet on page 56 of Pub 590 that will compute your contribution limit. Here is the link

http://www.irs.gov/pub/irs-pdf/p590.pdf

Answer 2

DISCLAIMER: This is not too be construed as actual investment advice but merely for informational purposes. You Should contact a tax professional for any financial assistance that can be suited with your specific financial background.

There are NO requirements to contribute to any retirement plans.

The only exception is a defined benefit plan which is a pension plan that a company must fund.

Most companies currently have switched to a defined contribution plans so the funding is done primarily through employee contribution via elective deferrals (and employer matching, if the company has a policy that match employee contributions).

A 403(b) plan is a plan that allow employees to defer a portion of their salary into the retirement plan But with NO employer contributions. If it did, then the company would be subject to testing requirements (which is a hassle for non-profit organizations, which generally sponsor 403(b) plans).

Below is a copy of my answer regarding IRA's that was posted to another person's IRA question.

There are generally 3 types (or, rather, tax treatments) of IRA's:
1. Deductible
2. Nondeductible
3. Roth IRA

Whether one can contribute to an IRA is the PRIMARY question.

If one is an Active participant in any Retirement plan, Then the ability to contribute to an IRA is Limited along with an AGI limitation based on that person's income tax filing status.

If you are Not an active participant or aren't in an existing pension plan, then you can always contribute to an IRA.

Deductibility means you can contribute to an IRA AND deduct it against your income taxes.

Non-deductible is relatively the opposite in which you can contribute to an IRA But can NOT deduct it against your income taxes.

YOU must track the Non-deductible portion on Form 8606. This is done when you receive IRA distributions in the future and only a portion is taxable (hence the tracking helps with a pro-ration of the IRA distribution).

Anyone can still put money towards a NON-deductible IRA even if one is NOT eligible just because it helps with buiding a nice retirement fund (i.e. nest egg).

Major problem: Tracking it!!! Some people lose track of their old returns as Form 8606 MUST be kept INDEFINITELY until you receive distributions from your IRA fund!!!

OK..... Stay with me... almost... done.......

Roth IRA is one where you put after-tax dollars into a Roth IRA account. You MUST keep the money in that account for a minimum of 5 years to receive the special tax treatment. That tax treatment is given to distributions and is NON-taxable on both contributions and earnings from the Roth IRA account IF it's HELD for 5 years or longer.

You can still take out the original Roth IRA contributions within the 5 year limit without taxation but don't touch the earnings as it IS subject to taxation and to the early withdrawal penalty!

Now... it depends on which one is better for you....

Considerations:
What's your income?
Are you an active participant in a retirement plan?
Are you eligible?
If so, do you need/want a tax deduction?
Do you want to put money away towards a "nest egg"?

The answer really depends on EACH person's financial situation but YOU must also know what and how IRA's are and their tax treament as well.

You should seek assistance with a tax professional to assist you with your specific retirement planning.