Renwanz Insurance & Financial Solutions, Carlsbad, CA
Yes, it is possible to have a 401k and a Roth IRA at the same time. They are completely separate accounts. If you are contributing to your 401k at work (and hopefully there is a company "match" as well), you can also contribute to your own Roth IRA outside of work.
When it comes time to start drawing on these two different retirement funds, the money taken out of your 401k will be taxable at that years' ordinary income tax level. You will be assessed a 10% early withdrawal penalty if you do not wait until age 59 1/2 to begin your withdrawals. There are a handful of exceptions that can allow you to begin withdrawals from your 401k prior to age 59 1/2. Beginning April 1 of the year following the year in which you turn age 70 1/2, you are required to begin Required Minimum Withdrawals from your 401k. Talk to your CPA about how this is calculated.
Roth IRA's require that you or your spouse have earned income and your adjusted gross income cannot exceed certain levels.
The contributions you made to your Roth IRA can be withdrawn at any time, tax free because you have already paid tax on this money. However, in order to withdraw your earnings from your Roth IRA account tax and penalty free, you must be at least 59 1/2 years old and the contributions to your Roth IRA must have been made at least 5 years before the withdrawal date. If you withdraw your Roth IRA earnings earlier than 5 years after the contributions, the earnings would not be considered a qualified distribution. The calculation on the "5 years" is not quite as straight forward as you would think looking at a calendar and you should discuss this withdrawal with a qualified financial professional.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The existence of a 401(k) does not stop an individual from taking out a Roth IRA. The limitation on Roth IRAs has to do with the amount of adjusted gross income the individual has, or the combine incomes of joint filing couples. The 401(k) will be fully taxable upon retirement whereas the Roth IRA will be income tax free. The combination allows for better planning in the retirement years.
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When it comes time to start drawing on these two different retirement funds, the money taken out of your 401k will be taxable at that years' ordinary income tax level. You will be assessed a 10% early withdrawal penalty if you do not wait until age 59 1/2 to begin your withdrawals. There are a handful of exceptions that can allow you to begin withdrawals from your 401k prior to age 59 1/2. Beginning April 1 of the year following the year in which you turn age 70 1/2, you are required to begin Required Minimum Withdrawals from your 401k. Talk to your CPA about how this is calculated.
Roth IRA's require that you or your spouse have earned income and your adjusted gross income cannot exceed certain levels.
The contributions you made to your Roth IRA can be withdrawn at any time, tax free because you have already paid tax on this money. However, in order to withdraw your earnings from your Roth IRA account tax and penalty free, you must be at least 59 1/2 years old and the contributions to your Roth IRA must have been made at least 5 years before the withdrawal date. If you withdraw your Roth IRA earnings earlier than 5 years after the contributions, the earnings would not be considered a qualified distribution. The calculation on the "5 years" is not quite as straight forward as you would think looking at a calendar and you should discuss this withdrawal with a qualified financial professional.