Is it good to have both 401k and roth ira?

If your employer offers a 401 (k) plan, you can choose to contribute to a traditional 401 (k) account or to a Roth 401 (k) account (or both). You can have a 401 (k) and a Roth IRA at the same time. Contributing to both is not only allowed, but it can also be an effective retirement savings strategy. However, there are some income and contribution limits that determine your eligibility to contribute to both types of accounts.

Yes, you can have both accounts, and a lot of people have them. The traditional individual retirement account (IRA) and 401 (k) offer the benefit of tax-deferred savings for retirement. Depending on your tax situation, you may also be able to receive a tax deduction for the amount you contribute to a 401 (k) account and to an IRA each tax year. Investment growth in both 401 (k) and Roth IRAs is subject to deferred taxes until retirement.

This is good for most participants, as people tend to fall into a lower tax bracket once they retire, which can lead to significant tax savings. The decision to open a Roth IRA, especially if your company already offers a 401 (k), depends on your individual circumstances. If your employer offers a 401 (k) plan, there may still be room in your retirement savings for a Roth IRA. Combining a 401 (k) and a Roth IRA can help you get tax and estate planning benefits at different points in your financial journey.

Contributing to both a 401 (k) and a Roth IRA allows you to maximize your retirement savings and benefit from tax advantages. If you meet the income requirements for contributions, there are two compelling reasons to use a Roth IRA to save for retirement. A Roth IRA is a tax-advantaged account that is funded by contributions made with money that has already been taxed. In the case of a Roth IRA, you must ensure that you do not exceed the income thresholds that the IRS sets for this account.

By contrast, contributions to the Roth IRA are made with money after taxes, so you won't have to pay taxes when you withdraw them later on. The contribution limits for the Roth IRA and the Roth 401 (k) are the same as those of their non-Roth counterparties, but the tax benefits are different. If your employer matches your 401 (k) contributions, it's usually a good idea to make the most of them before contributing to a Roth IRA. This type of Roth 401 (k) account is different from contributions to a Roth IRA that your employer can provide or from a Roth IRA that you can open with a brokerage agency on your own.

Marshall says he prefers to see customers with different types of accounts, such as Roth IRAs, 401 (k), traditional IRAs and brokerage accounts. You can use the IRS Interactive Tax Assistant tool to see if your withdrawal from a Roth IRA qualifies and is tax-exempt. Assuming you meet the eligibility requirements, contributing to both a 401 (k) and a Roth IRA can offer both short- and long-term tax advantages. CNBC Make It spoke to a personal finance expert about the differences between a 401 (k) and a Roth IRA to help him understand which one might best fit his lifestyle and retirement savings goals, and whether it's worth contributing to both.

Contributions to a Roth IRA are made with after-tax dollars and are therefore not taxed when you withdraw the money, as long as your account has been active for five years.