Imagine logging into your company’s benefits portal, spotting a Roth 401(k) option, and wondering whether you can still open a Roth IRA on your own. A Roth 401(k) is an employer‑sponsored retirement plan funded with after‑tax dollars, while a Roth IRA is a self‑directed individual account that also relies on after‑tax contributions. Both vehicles offer the same goal—tax‑free qualified withdrawals—but they operate under different rules.
Pairing these two accounts can supercharge your savings: you tap into higher contribution limits and employer matching through your Roth 401(k) while using a Roth IRA for added flexibility and investment choices. This combination also delivers important tax diversification, giving you both pre‑tax and after‑tax options as you plan for retirement.
Here are the 10 must‑know rules to navigate contribution limits, income tests, withdrawal guidelines, and more. Let’s get started.
1. You can contribute to both a Roth 401(k) and a Roth IRA in the same year
It’s perfectly legal—and often advantageous—to fund both a Roth 401(k) and a Roth IRA within the same calendar year. The IRS treats each as a separate retirement vehicle, so your contributions to one don’t reduce the limits on the other. That said, juggling two sets of deadlines and limits means it’s easy to accidentally overcontribute, so keep careful records of how much you’ve put into each account.
1.1. Separate annual limits for each account
Each plan has its own contribution ceiling:
| Plan | 2024 Limit | 2025 Limit |
|---|---|---|
| Roth 401(k) employee deferral | $23,000 (+ $7,500 catch‑up if age 50+) | $23,500 (+ $7,500 catch‑up if age 50+) |
| Roth IRA contribution | $7,000 (+ $1,000 catch‑up if age 50+) | $7,000 (+ $1,000 catch‑up if age 50+) |
Because the caps are independent, you could contribute up to $30,500 to a Roth 401(k) in 2024 (including catch‑up) and still tuck away another $8,000 in a Roth IRA if you’re 50 or older.
1.2. Prioritize employer match then Roth IRA
Before you start sending money to an IRA, make sure you’re contributing enough to your Roth 401(k) to capture the full employer match. An employer match is essentially free money—leaving it on the table hurts your long‑term nest egg. Once you’ve locked in that match, it makes sense to top off a Roth IRA to take advantage of its broader investment menu and more lenient withdrawal rules.
1.3. Actionable example
Imagine you’re 30, earn $80,000 a year, and your employer offers a 100% match on the first 5% you defer:
• You elect 5% of your salary ($4,000) into your Roth 401(k).
• Your employer matches that with another $4,000 in pre‑tax contributions to your traditional 401(k) sub‑account.
• With the match secured, you open a Roth IRA and contribute the full $7,000 for the year.
By following this approach, you’ve invested $4,000 in your Roth 401(k), claimed $4,000 in employer match, and added $7,000 into your Roth IRA—all without exceeding any IRS limits and while maximizing both free money and tax diversification.
2. Contribution limits for Roth 401(k) and Roth IRA differ significantly
Maxing out your retirement savings means understanding both deferral limits (what you can put in) and plan‑level caps (the total your account can receive). Roth 401(k) plans set a high bar for employee deferrals and also cap the combined contributions from you and your employer. In contrast, Roth IRAs have a lower, fixed annual limit—and a strict penalty if you exceed it. Knowing the distinction helps you stack your tax‑advantaged dollars without tripping over IRS rules.
2.1. Roth 401(k) limits and plan-level caps
As a defined‑contribution vehicle, a Roth 401(k) imposes two key limits:
- Employee deferral limit: How much you personally can defer from your paycheck
- Total contribution limit: The sum of your deferrals, employer match, and any after‑tax contributions
Refer to Summit’s 401(k) plans page for more on plan design and employer options. Here’s how the numbers break down:
| Limit type | 2024 Amount | 2025 Amount |
|---|---|---|
| Employee deferral | $23,000 (+ $7,500 catch‑up) | $23,500 (+ $7,500 catch‑up) |
| Total annual plan contributions | $69,000 (+ $7,500 catch‑up) | $69,000 (+ $7,500 catch‑up) |
The “total annual plan contributions” limit (also called the 415(c) limit) ensures that the combined deposits—your Roth deferrals, any traditional pre‑tax deferrals, employer match, and profit‑sharing—don’t exceed the IRS ceiling. If you’re 50 or older, the catch‑up amount lifts both your personal and total limits by another $7,500.
2.2. Roth IRA limits and catch-up
Individual Retirement Arrangements have a single, uniform cap governed by IRS Publication 590‑A. Unlike a 401(k), there’s no employer slice—just your contributions.
| Contribution type | 2024 Amount | 2025 Amount |
|---|---|---|
| Roth IRA regular contribution | $7,000 | $7,000 |
| Roth IRA catch‑up (age 50+) | + $1,000 | + $1,000 |
You can never exceed these IRA maximums across all Roth and traditional IRA accounts combined. If you do, the IRS imposes a 6% excise tax on the excess each year until it’s corrected.
2.3. Tracking contributions
Staying under both sets of limits requires a bit of organization:
- For your Roth 401(k), review paystub deferral elections each quarter and confirm via your plan’s online portal.
- For your Roth IRA, set calendar reminders or use your brokerage’s recurring deposit feature.
- Keep a simple spreadsheet or journal entry that logs dates and amounts for each IRA contribution.
If you accidentally overcontribute to your Roth IRA, you have until your tax‑filing deadline (including extensions) to remove the excess plus any earnings. Otherwise, that 6% penalty can erode your hard‑earned gains.
By tracking both accounts in tandem, you’ll maximize every dollar of tax‑advantaged savings without triggering IRS penalties.
3. Income limits apply only to Roth IRAs, not to Roth 401(k)s
Your ability to contribute to a Roth IRA hinges on your Modified Adjusted Gross Income (MAGI), while a Roth 401(k) has no such restriction. MAGI starts with your adjusted gross income—think wages, interest, and dividends—and then adds back certain deductions, like student loan interest or retirement plan contributions. The IRS uses MAGI to phase out or bar direct Roth IRA contributions if you earn above set thresholds. By contrast, as long as your employer offers a Roth option, you can sock away dollars into a Roth 401(k) regardless of how much you make.
3.1. Roth IRA income phase‑out ranges
If your MAGI falls within the IRS’s “phase‑out” band, your allowable Roth IRA contribution is reduced. Earn too much, and you’re shut out of direct contributions altogether until next year’s limits reset.
2024 phase‑out ranges:
| Filing Status | MAGI Range | Contribution Limit |
|---|---|---|
| Single/Head of Household | $146,000–$160,999 | Reduced contribution |
| Married Filing Jointly | $230,000–$239,999 | Reduced contribution |
| Any filer above | ≥ $161,000 (single) ≥ $240,000 (MFJ) |
No contribution allowed |
2025 phase‑out ranges:
| Filing Status | MAGI Range | Contribution Limit |
|---|---|---|
| Single/Head of Household | $150,000–$164,999 | Reduced contribution |
| Married Filing Jointly | $236,000–$245,999 | Reduced contribution |
| Any filer above | ≥ $165,000 (single) ≥ $246,000 (MFJ) |
No contribution allowed |
Below the lower bound, you can contribute the full $7,000 (plus $1,000 catch‑up if you’re 50 or older). Inside the band, your limit shrinks proportionally. Once you exceed the upper bound, direct Roth IRA funding is off the table.
3.2. No income test for Roth 401(k)
Unlike IRAs, Roth 401(k)s don’t look at your MAGI. High‐earning executives and rank‑and‑file alike can contribute up to the plan’s deferral limit—$23,000 in 2024 or $23,500 in 2025—plus catch‑up if eligible, regardless of income. The only prerequisite is that your employer’s plan includes a Roth feature.
3.3. Strategy for high earners
If your income disqualifies you from a direct Roth IRA, you’ve still got options. First, max out your Roth 401(k) deferrals to lock in after‑tax savings at the high contribution limit. Then, consider a “backdoor” Roth IRA (covered under Rule 9) by making a non‑deductible traditional IRA contribution and converting it to a Roth IRA. This two‑step maneuver bypasses the income caps while still landing your money in a tax‑free bucket.
4. Employer matching contributions are always pre-tax
When your employer offers to match part of your Roth 401(k) deferrals, those matching dollars don’t land in your Roth bucket. By law, every matching contribution must go into the plan’s traditional, pre‑tax subaccount. So even when you’re funding your own retirement with after‑tax dollars, you’ll see a separate balance for employer match that remains tax‑deferred until distribution.
4.1. Tax treatment of employer match
Employer matches are treated as traditional 401(k) contributions, which means they reduce your taxable income today and grow tax‑deferred. You won’t pay any taxes on those matched funds until you withdraw them in retirement—just like any other pre‑tax 401(k) money. When you eventually take distributions, you’ll owe ordinary income tax on both the matched contributions and their earnings.
4.2. Impact on account balances
Because matches flow into a traditional sub‑account, your plan statement typically shows two separate balances: one for Roth deferrals and another for traditional contributions (including employer matches). For example, if you earn $100,000 and your employer offers a 3% match, they’ll deposit $3,000 into your traditional 401(k) sub‑account, even if your own contributions go into the Roth side. Over time, that pre‑tax stack can amount to a significant source of taxable income in retirement.
4.3. Planning tip
When mapping out your retirement income strategy, don’t forget about these pre‑tax match dollars. They can help diversify your tax picture in retirement: you’ll have both Roth assets for tax‑free withdrawals and traditional assets that may provide deductions in higher‑income years. Factor employer match into your withdrawal projections and consider how it interacts with your Roth savings to manage your overall tax liability.
5. Required Minimum Distributions (RMDs) differ between accounts
Required Minimum Distributions (RMDs) are the IRS‑mandated withdrawals you must begin taking from certain retirement plans once you reach a specified age. The goal is to ensure that tax‑deferred dollars don’t sit in an account indefinitely. However, the rules for RMDs vary significantly between Roth 401(k)s and Roth IRAs—a difference that can influence how you structure your retirement savings.
Roth 401(k)s generally follow the same RMD schedule as traditional 401(k)s, meaning you must start withdrawing by the required age. In contrast, Roth IRAs carry no RMD requirement during the original owner’s lifetime. Understanding this distinction lets you keep more of your savings invested tax‑free for longer if you plan ahead.
5.1. RMD rules for Roth 401(k)
Under current law, most 401(k) accounts—including the Roth portion—trigger RMDs beginning at age 73 (raised from 72 by the SECURE Act 2.0). That means:
- In the calendar year you turn 73 (or retire, if later, for some plans), you must withdraw at least the IRS‑calculated minimum.
- Failing to take the full RMD by the deadline can incur a penalty equal to 25% of the undistributed amount (reduced to 10% if corrected in a timely manner).
Some employers may offer plan provisions that delay RMDs if you’re still working past age 73. Check your plan’s Summary Plan Description or ask your TPA to see if you qualify for an “RMD deferral” based on continued employment.
5.2. Roth IRA RMD exemption
Roth IRAs enjoy a unique perk: there are no RMD requirements for the original account owner. You can let that balance grow tax‑free for as long as you live. Here’s why that matters:
- You retain full control over your assets, so you’re free to delay withdrawals to suit cash‑flow needs or tax‑planning strategies.
- Your heirs can inherit a Roth IRA and stretch distributions (tax‑free) over their lifetimes, though they must follow RMD rules for beneficiaries.
This perpetual tax‑free growth is a key advantage of Roth IRAs—and a compelling reason to hold at least some of your retirement savings in this vehicle.
5.3. Avoiding RMDs on Roth 401(k)
If you value the RMD exemption, you can convert your Roth 401(k) into a Roth IRA before age 73:
- Initiate a rollover of your Roth 401(k) balance into an existing or new Roth IRA.
- Once funds land in the Roth IRA, they’re no longer subject to plan‑level RMD rules.
- Maintain the Roth IRA indefinitely—no RMDs ever.
By rolling your Roth 401(k) into a Roth IRA, you preserve the benefit of tax‑free growth without the pressure of mandatory withdrawals. It’s a simple step that can keep more of your nest egg invested on your terms.
6. Early withdrawal rules and penalties vary by account
When it comes to dipping into your retirement funds before retirement age, not all dollars are created equal. Both Roth 401(k)s and Roth IRAs let you withdraw contributions or earnings early—but they treat those withdrawals differently. At a high level, contributions or your own after‑tax dollars are usually safe, but any earnings you pull out may trigger income tax plus a 10% penalty if you haven’t met certain requirements.
Mistiming a withdrawal can mean handing Uncle Sam a slice of your hard‑earned gains. Before you tap into either account, it’s crucial to know which funds you can access penalty‑free and what exceptions might save you from that 10% charge.
6.1. Roth 401(k) early withdrawal rules
If you withdraw funds from a Roth 401(k) before age 59½ (and before you’ve met the five‑year seasoning), earnings are subject to ordinary income tax plus a 10% early‑distribution penalty. Unlike a Roth IRA, you can’t pull out “contributions” separately—your account is one bucket where everything is commingled. That makes it harder to isolate penalty‑free dollars.
There are a few exceptions that let you avoid the penalty on earnings:
- Separation from service in or after the year you turn
55 - Disability
- IRS‑approved distributions, such as certain medical expenses or a qualified domestic relations order
Even with these exceptions, non‑qualified distributions of earnings still incur ordinary income tax unless you meet the five‑year rule (see 6.3).
6.2. Roth IRA early withdrawal rules
A Roth IRA gives you more flexibility. Because your contributions went in after tax, you can always withdraw an amount up to your total contributions—principal only—at any time, for any reason, without owing tax or penalty. That makes your Roth IRA a potential backup source of emergency cash.
Withdrawing earnings from a Roth IRA before age 59½ (or before the account is five years old) generally leads to:
- Income tax on the earnings portion
- A 10% penalty on those earnings
In other words, pull out your principal contributions freely, but tread carefully when tapping growth before you’re fully qualified.
6.3. Qualified distribution requirements
To make a completely tax‑free and penalty‑free withdrawal of both contributions and earnings, you must satisfy two conditions:
- Five-year seasoning: The clock starts on January 1 of the tax year in which you made your first Roth contribution (IRA or 401(k)).
- Age trigger (or exception): You’ve reached age
59½, or you qualify under an exception—such as using up to $10,000 for a first‑time home purchase, meeting IRS disability criteria, or claiming a distribution by reason of death.
Once you meet both the five‑year rule and an age or exception requirement, every dollar you pull from either account flows out tax‑free. That’s the sweet spot to aim for as you plan your retirement income strategy.
7. Tax implications for retirement distributions
After decades of contributions and careful planning, the way you withdraw your money can make a big difference in your tax bill. Distributions from Roth accounts and traditional 401(k) plans follow distinct tax rules, and knowing the differences helps you craft a strategy that minimizes taxes in retirement.
7.1. Tax-free qualified withdrawals
Once you satisfy the five‑year seasoning requirement and reach age 59½ (or meet another qualifying exception), distributions from both your Roth 401(k) and Roth IRA are entirely tax‑free at the federal level. You won’t owe any income tax on the contributions you made or the earnings they generated. This tax‑free feature can be a powerful tool if you anticipate higher tax rates down the road or want to keep your taxable income low in certain years.
7.2. Traditional 401(k) withdrawals
In contrast, withdrawals from a traditional 401(k)—including any employer match placed into the plan’s pre‑tax subaccount—are taxed as ordinary income. When you take money out, that amount is added to your taxable income for the year, which may push you into a higher tax bracket. While the initial tax deferral and employer match can boost your savings early on, you’ll need to plan for the eventual tax impact on both contributions and earnings.
7.3. Tax diversification benefits
Holding both Roth and traditional assets gives you a level of flexibility known as tax diversification. In retirement, you can choose which bucket to draw from based on your income needs and current tax situation. For example:
- In years with higher taxable income—perhaps when drawing Social Security—you might tap Roth dollars to avoid bracket creep.
- In leaner years, you could withdraw from your traditional 401(k) while you’re in a lower bracket, preserving your Roth balance for later.
By balancing tax‑free and tax‑deferred withdrawals, you can smooth out your tax liability over the course of retirement, keep more of your nest egg intact, and respond dynamically to changes in tax law or your personal circumstances. If you’d like help designing a withdrawal plan that aligns with your goals, reach out to Summit Consulting Group for expert retirement plan administration and fiduciary guidance.
8. Catch‑up contributions boost savings for savers age 50+
If you’re age 50 or older, the IRS gives you a little extra room to play catch‑up on your retirement savings. Both Roth 401(k)s and Roth IRAs allow higher contribution limits for seasoned savers, helping you ramp up your nest egg as retirement draws nearer. Taking full advantage of these catch‑up allowances can add thousands of extra dollars to your tax‑advantaged accounts each year.
8.1. Roth 401(k) catch‑up
Once you hit age 50, you can contribute an additional $7,500 on top of the standard employee deferral limit to your Roth 401(k). That means:
- In 2024, instead of the usual
$23,000, you can defer up to$30,500. - In 2025, the base limit rises to
$23,500, and with catch‑up you can defer up to$31,000.
These extra dollars are after‑tax contributions, so they join your existing Roth balance and grow tax‑free. If you’ve been waiting to boost your savings late in your career, this catch‑up provision is a powerful tool.
8.2. Roth IRA catch‑up
Your Roth IRA gets a smaller but still valuable catch‑up boost:
- The standard contribution limit remains
$7,000. - If you’re 50 or older, you can add an extra
$1,000, for a total of$8,000per year in 2024 and 2025.
Because Roth IRAs don’t require RMDs and allow penalty‑free access to contributions, maximizing that $1,000 catch‑up can give you added flexibility—either as a savings buffer or an investment accelerator.
8.3. Combined savings example
Let’s say you’re age 55 and you decide to max out both accounts in 2025:
- Roth 401(k) base deferral:
$23,500 - Roth 401(k) catch‑up:
$7,500 - Roth IRA base contribution:
$7,000 - Roth IRA catch‑up:
$1,000
That adds up to:
23,500 + 7,500 + 7,000 + 1,000 = 39,000
In a single year, you could shelter $39,000 of after‑tax income into Roth accounts, supercharging your retirement savings and tax‑diversification strategy. If you haven’t reviewed your contribution elections lately, now’s the time to adjust for these catch‑up allowances and make every dollar count.
9. Recharacterization, conversions, and backdoor Roth strategies
Sometimes your retirement roadmap needs a detour—whether you’ve accidentally overfunded an IRA, want to shift pre‑tax dollars into a Roth bucket, or your income puts you out of reach for direct Roth IRA contributions. Here are three tactics to keep your savings on track.
9.1. Roth IRA recharacterization
If you contribute to a Roth IRA but later discover you earned too much (or simply change your mind about tax treatment), you can “recharacterize” that contribution as a traditional IRA deposit. By the tax‑filing deadline (including extensions), you instruct your IRA custodian to transfer the original contribution plus any earnings into a traditional IRA. This correction wipes out the excess Roth deposit and avoids penalties. For the nitty‑gritty on deadlines, eligibilities, and the required calculation of earnings, see IRS Publication 590‑A.
9.2. In‑plan Roth conversions
Many modern 401(k) plans let you convert existing traditional (pre‑tax) balances into the plan’s Roth subaccount—an “in‑plan conversion.” When you trigger a conversion, the rolled‑over amount becomes a Roth asset and grows tax‑free going forward. Be aware that any converted sum is taxed as ordinary income in the year of conversion, so plan ahead for that bill. If your employer plan supports in‑service conversions or auto‑conversions of after‑tax contributions, it can be an efficient way to build your Roth balance without leaving your workplace savings vehicle.
9.3. Backdoor Roth IRA for high earners
When MAGI phase‑outs block your path to a direct Roth IRA, the “backdoor” can be surprisingly straightforward:
- Open a traditional IRA and make a non‑deductible contribution (up to the $7,000/$8,000 limit).
- Shortly afterward, convert the entire balance to a Roth IRA.
- Report the conversion on IRS Form 8606 to establish that you already paid tax on the principal.
If you hold other traditional IRAs, remember the pro‑rata rule: the IRS taxes a share of your conversion based on the ratio of pre‑tax to after‑tax funds across all IRAs. The cleanest backdoor results when you have no other IRA balances, or you roll them into a 401(k) first.
Each of these strategies—recharacterization, in‑plan conversion, and the backdoor Roth—can help you optimize your after‑tax savings and guard against IRS missteps. If you’d like assistance designing the right mix of fixes and conversions, reach out to Summit Consulting Group for expert retirement plan administration and fiduciary guidance.
10. Options if you can’t contribute to a Roth IRA
Not everyone qualifies for a direct Roth IRA—income phase‑outs or lack of IRA access can get in the way. But that doesn’t mean you have to abandon tax‑free savings. Here are three smart alternatives to keep maximizing your retirement nest egg.
10.1. Max out your Roth 401(k) and employer match
Since Roth 401(k)s have no income limits, the first move is simple: contribute up to the plan’s deferral cap. In 2025 you can defer $23,500 (plus a $7,500 catch‑up if you’re 50 or older), all of which goes in after tax and grows tax‑free. And don’t forget the employer match—make sure you’re deferring at least enough to secure every penny of “free money” your company offers. By fully funding your Roth 401(k) and capturing the match, you’re effectively substituting for lost Roth IRA space.
10.2. Traditional IRA or other workplace plans
If you’re shut out of a Roth IRA, you can still use a traditional IRA. Even if your income prevents a tax deduction, you can make a non‑deductible contribution and later convert it to a Roth (see Rule 9 for backdoor Roth details). Alternatively, explore other employer‑sponsored plans:
• SEP IRA or SIMPLE IRA for small‑business owners and self‑employed individuals
• Defined benefit or cash‑balance plans if you have room to save more on a high‑income schedule
Each plan has its own rules and tax advantages—consult a tax advisor to pick the best fit for your situation.
10.3. Other tax‑advantaged vehicles
When retirement plan doors close, look for windows elsewhere:
• Health Savings Accounts (HSAs) reward you with triple tax benefits: pre‑tax contributions, tax‑free growth, and tax‑free medical withdrawals.
• After‑tax brokerage accounts let you harvest favorable long‑term capital gains and tax‑loss harvesting opportunities.
• Fixed or variable annuities can offer tax‑deferred growth if you’ve maxed out every other shelter.
These supplemental vehicles won’t replace a Roth IRA, but they can round out your tax‑efficient savings strategy.
Even if direct Roth IRA contributions aren’t on the table, you still have plenty of avenues to build a tax‑diverse retirement portfolio. For help evaluating these options and designing a streamlined, compliant plan, reach out to Summit Consulting Group for expert retirement plan administration and fiduciary services.
Putting your retirement savings strategy into action
You’ve learned the 10 must‑know rules for combining a Roth 401(k) and a Roth IRA. Now it’s time to turn those principles into practice. Start by reviewing your current deferral elections and employer match: confirm you’re contributing enough to secure every dollar of free match in your Roth 401(k). Next, log into your brokerage or custodian portal and set up—or bump up—recurring deposits to your Roth IRA, keeping your income phase‑out thresholds in mind.
Track your progress with simple tools: a quarterly check of pay‑stub deferrals, a shared spreadsheet for IRA deposits, and calendar alerts for tax‑filing deadlines. If you’re nearing age 50, update your elections to capture catch‑up contributions in both accounts. And if your MAGI disqualifies you from a direct Roth IRA, plan for a backdoor conversion or an in‑plan Roth rollover to stay on the tax‑free growth path.
Don’t overlook your plan’s design and the paperwork details. Scan your Summary Plan Description for RMD provisions, in‑plan Roth conversion options, and any deferral‑deferral limits. If you discover an accidental overcontribution or a missed deadline, act quickly to recharacterize or correct before penalties apply. And remember that tax diversification isn’t just a buzzword: strategically balance Roth and traditional buckets to manage taxable income in retirement.
Finally, put these insights to work with expert support. Whether you need help auditing your current 401(k) setup, structuring backdoor Roth moves, or evaluating alternate vehicles like HSAs or SEP IRAs, Summit Consulting Group is here to simplify the process. Visit Summit Consulting Group for tailored retirement plan administration and fiduciary services—so you can focus on growing your nest egg, not wrestling with paperwork.
