Impact of Roth IRA Contributions on 401(k) Deferral

[Below Ground]

Earlier in this 2010 calendar year, an individual was making contributions to a Roth IRA. The Employer has just established a 401(k) Plan that includes both Traditional and Roth Deferrals. Can the person now contribute under the new 401(k) given the contributions made to the Roth IRA?

[Lou S.]

No problem making 401(k) contributions. I assum this person is under the income limit for making a direct ROTH_IRA contribution. If they are not you have to go through some song and dance about making a traditional non-deductible IRA contribution and then doing a conversion to a ROTH-IRA. That always seemed silly to me but unless the IRS has changed the rules that I'm unaware of that where we are at.

Edit - also when you say "early in 2010" was that a 2010 or 2009 roth-ira contribution?

[Below Ground]

Thanks Lou. The Roth IRA Contributions were for 2010. It seems that scheduled, periodic contributions ($ cost averaging) were made during the year. Then, stopped when person learned a 401(k) plan would be put in by the employer. Is there a general rule for this topic? Again, thanks!

[masteff]

Not sure what you mean by a general rule. IRS Publication 590 has some helpful information. What might be tripping you up is that contributions to a Traditional IRA may have limited deduction if also in an employer plan. But since Roth contribuitons are not deductible, then only income phase out matters.

The fact that the EE in question stopped making Roth contribs when started in the 401(k) suggests to me that the person only has X dollars of cashflow to allocate to retirement and since the 401(k) likely has a match then the person is going that route instead of Roth.

[K2retire]

The fact that the EE in question stopped making Roth contribs when started in the 401(k) suggests to me that the person only has X dollars of cashflow to allocate to retirement and since the 401(k) likely has a match then the person is going that route instead of Roth.

Or that the person thought doing one disqualified them from doing the other.

[Below Ground]

K2 - Therein lies the crux of the matter. I, having nothing to do with IRAs, do not find myself confident in making a reply. Having stated this to the person with the question, I decided to post this question to fill that huge gap in my knowledge. From what I am gathering, there is no impact. Is that correct? Thanks!

[masteff]

For an external source of confirmation: "Remember also that you may contribute to a Roth IRA even if you are covered by a company retirement (pension/401(k)/profit sharing) plan." http://www.fool.com/money/allaboutiras/allaboutiras04.htm

[austin3515]

Check out this IRS web-page which I have found to be VERY well done and informativ. And Masteff is right (as if this obvious fact needs to be restated

http://www.irs.gov/retirement/participant/...=188232,00.html

[Below Ground]

Thank you very much.

If I understand this right, being under a qualified plan has no impact. A person can be limit on how much, but only based on AGI level.