Roth IRA & Roth 401k in same year
Taxpayer has self-employed earnings of $18,000. Taxpayer has a Solo Roth 401k into which he contributes $16,500.
Can he also contribute $5,000 into a Roth-IRA?
(The total contributions would thus be more than his total income, but he has other assets which can be tapped to make the contributions.)
RothIRA contributions cannot exceed the SE earnings less contributions to other plans. But the IRS instructions seem to indicate that you take into consideration only the “deductible” contributions – and the Roth 401k is not “deductible”.
Thus, it appears he can make both contributions. Any thoughts?
Permalink Submitted by Alan Spross on Tue, 2012-01-24 00:56
I agree.
This also applies to W-2 employees who elect designated Roth contributions in their 401k. These contributions do not reduce Box 1 taxable earnings amounts, therefore the employee can use the same income to support more than one type of retirement plan contribution. The employee could in theory contribute their entire earnings (less FICA) to the designated Roth and then make a TIRA or Roth IRA contribution using those same earnings.
For the self employed the situation is similar since SE earnings are only reduced by deducted retirement plan contributions, and the solo K Roth results in no deductions.
I don’t know whether these tax code provisions that date back to the pre Roth days have not been amended for specific reasons or just due to oversight since this combination of circumstances would only occur in a few isolated cases. Right now Congress wants to encourage Roth contributions since they increase current tax revenue.