Understanding Retirement Account Options
There are various types of retirement accounts and it can be confusing to understand when you can contribute to one or multiple of these accounts. The below information should help clarify things a bit. Please note that these are only guidelines and not a comprehensive list of all of the IRS rules pertaining to these types of accounts. This is intended to answer the most common questions.
Contributions to traditional 401k and IRA accounts are typically made with pre-tax dollars.
Contributions to Roth 401k and IRA accounts are always made with after-tax dollars.
401k accounts (both traditional and Roth) have no income limitations and traditional 401k accounts are fully deductible regardless of income. Anyone with earned income can contribute to either type of 401k account.
IRA’s – There are rules that pertain to your eligibility to contribute to these accounts and rules that pertain to the deductibility of your contributions.
Rules pertaining to eligibility are for Roth accounts.
Rules pertaining to deductibility are for traditional accounts.
