Roth 401K and ROTH contribution limits

Submitted by Greg Pierce on Sat, 2018-09-29 15:54

I am 70.5 years old working full time and currently funding my 401k at $24,500 per year and also funding ROTHs (both established longer than five years) annually at $6500 each for myself and my 68 year-old wife. My employer just opened a new ROTH 401K option. Our combined income, both Social Security checks and RMD (irrelevant, since I QCD away the entire amount) equal about $150,000. Assuming that I can afford the $5390 tax (22% bracket) on the ROTH 401K contribution if I switch from a 401K to a ROTH 401K contribution, can I continue to maximize the 2 individual ROTH plans at $6500 each? My plan administrator says yes but suggests contacting a tax expert and that would be you! Thanks for your expertise.



Submitted by Alan - IRA critic on Sat, 2018-09-29 17:41

  • For 2018 your modified AGI phaseout range for Roth IRA contribution is 189k-199k, so if you will be anywhere close to those figures, you might want to project closely or wait until your MAGI is known next Feb before making the Roth contributions. If the 150 figure is correct, you have room to increase it and stay below the 189k figure.  Note that every dollar you switch from your pre tax 401k to your Roth 401k will add to your MAGI. 15% of your SS income will be tax exempt and not included in your MAGI. 
  • Part of your question appears to be whether making both Roth 401k and Roth IRA contributions results in any limits. It does not, except to the extent mentioned above where your MAGI becomes too high because of switching to Roth 401k contributions.
  • If you do happen to fall into an excess Roth IRA contribution situation, you can simply have the contributions returned to you with any earnings. The pitfall with that is those earnings must then be included in your 2018 income, and even though small, would again increase your MAGI and create an additional small excess amount. Therefore, since we are late in the year, if you think you will be too close to 189k MAGI, you can wait and make the contributions in March or so for 2018. 
  • Of course, you would only switch to Roth 401k deferrals if you think your marginal rate in retirement will be higher (or in some cases the same as) that 22% rate you will pay for your Roth contributions. Add your state rate if it applies. There is also no requirement to elect all Roth or all pre tax going forward in your 401k. You could hedge your bets and split the contributions. Of course, 24,500 is the combined max either way.

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