ROTH limit due to 401(k) participation?

[duanecpa]

The only limitation on Roth contributions that I can find is relating to the taxpayer's AGI and is not limited due to participation in a 401(k) plan - please confirm.

Thank you.

Duane

[Roland Slugg]

That is correct. Being an active participant in a 401(k) or other retirement plan (except a traditional IRA) is not a bar to making a contribution to a Roth IRA.

[Rapid Robert]

The only limitation on Roth contributions that I can find is relating to the taxpayer's AGI and is not limited due to participation in a 401(k) plan - please confirm.

Well, there's also the limit based on earned income, so AGI is not the only one. To further clarify, participation in a 401(k) plan doesn't limit one's contributions to a traditional IRA, either.

[Burke]

To further clarify, participation in a 401(k) plan doesn't limit one's contributions to a traditional IRA, either.

I believe it can if you are talking about a deductible IRA (which is usually how I interpret traditional) depending on AGI.

[Rapid Robert]

I believe it can if you are talking about a deductible IRA (which is usually how I interpret traditional) depending on AGI.

An IRA itself is not "deductible", when you create an IRA there is no checkbox on the form asking about whether it is deductible or not. Contributions to a Traditional IRA may or may not be deductible in any given tax year, AGI is one factor and retirement plan participation is another.

The distinction is important, because more than a few times I've read questions from tax practitioners talking about Trad. IRA contributions in a specific situation not being allowed, when what they mean is they are not deductible. Prior to the existence of Roth IRAs, making non-deductible contributions to a Trad. IRA was a more common tax planning strategy (because the earnings would still be tax deferred).

Even the OP in this post implied that 401(k) participation might put a limit of some kind on (non-employer) IRA contributions, which is never true for Roth or Traditional.

[Burke]

I will agree with that. My experience has not been the same as yours, and perhaps that has to do with the income levels of clientele. Almost all traditional IRA contributions I have dealt with usually involved deductible ones, whether it was the primary taxpayer or spouse. It was the case if there were no immediate tax benefit on the current year's return, they were generally not made at all. Nowadays younger contributors may wish to go with Roths, but older clientele usually decline since their old accounts have grown to such a point there is a significant tax hit for conversion. I only had one take advantage of the conversion over the 2-yr period when it was offered a while back, and he was in a significantly higher tax bracket.

[Rapid Robert]

older clientele usually decline since their old accounts have grown to such a point there is a significant tax hit for conversion.

Any amount can be converted in a given year, does not need to be the entire account. If someone's taxable income takes them to the 15% bracket, it is often feasible to convert just enough to "top up" that bracket, this way over a period of years most or all of the Trad. IRA could be converted without triggering higher tax in any year. The same logic could apply to 25% bracket, if taxpayer thinks they will continue in that bracket for the foreseeable future.