When does it make sense to use Roth IRA. I already am participating to the maximum to my 401K. Does that maximum prevent me from purchasing a Roth IRA with my quarterly company bonus?

Terry Says:

Yes, you can contribute to BOTH a 40l(k) and a Roth IRA in the same year — if you meet the income limits restricting contributions to Roth IRAs.  For 2017 here are the limits:  The first column shows the income level at which the amount you can contribute starts phasing out.  When your income reaches the level in the second column, you can no longer contribute to a Roth IRA.

Single, head of household, or married filing separately if you didn’t live with your spouse during the year $118,000 $133,000
Married filing jointly or qualifying widow(er) $186,000 $196,000
Married filing separately if you lived with your spouse at any point during the year $0 $10,000


There is a very specific definition of income:  It requires you to calculate your modified adjusted gross income, or MAGI. This includes all of your income from all sources, though you may deduct any income you’ve recognized from converting a regular retirement account to a Roth. It also allows for certain other deductions, including educator expenses, health savings account deductions, moving expenses, and early-withdrawal penalties.

As you can see it depends on your marital status as well as your income level.   Check with a mutual fund company such as Fidelity or Vanguard and they will help you determine whether you are eligible to contribute to a Roth IRA.  And remember you can save any amount of money OUSIDE of a retirement plan — either in a money market type savings account or by investing in stocks and mutual funds in your own name!

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