Limits for Roth IRA and 401K Plan Totals
There are no limitations on the totals for a Roth IRA or 401k retirement program. The 401k retirement plan is set up by employers as an individual retirement arrangement that defers income taxes on a percentage of payroll diverted to retirement savings. A Roth IRA is a tax-free individual retirement arrangement in which after-tax money is deposited in the account.
Other People Are Reading
-
401k
-
A 401k is a retirement arrangement in which the employer sponsors a plan for its work force. Participants can choose to participate or not. It generally allows for the employer and the employee to make contributions to the account. The employee can normally contribute up to 15 percent of earnings into the account. The employer often matches contributions up to a ceiling. The matching funds count as untaxed gross wages. When funds are distributed after retirement, normal income tax applies. Generally, a company will offer a few choices of investment vehicles for employees to participate in.
Roth IRA
-
A Roth IRA is an arrangement that is established by the owner of the investment vehicle. It can be opened at any brokerage house, bank, or financial institution that offers Roth IRAs approved by the IRS. In a Roth, after-tax income is deposited into an account where it is allowed to grow tax-free. Distributions after retirement are tax-free, as are distributions of contributions prior to retirement. The retirement account's accumulated funds can also be tapped for certain activities with no tax penalty.
-
Contribution Limits of the 401k
-
The contribution limitations on a 401k are on earnings. According to the IRS, in 2009 and 2010, "no more than $245,000 of an employee's compensation can be taken into account when figuring contributions." The IRS notes that the compensation limits are indexed for inflation.
Contribution Limits for a Roth IRA
-
For 2009, the contributions limits for a Roth IRA were $5,000 for an individual and $6,000 for those over age 50. The IRS makes provisions for certain catch-up contributions in cases where an employee's company went bankrupt. Only individuals who meet the income requirements can contribute. As of 2009, that was $177,000 in adjusted gross income for couples filing together and $120,000 if your filing status is single.
About the Totals
-
The total money accrued in a Roth IRA and a 401k are determined by investment performance. Investment performance varies from year to year, based on the types of investment. Factors such as the investment vehicle, market conditions and amount invested all contribute to the plan's totals. There are no total limitations on the values of these retirement arrangements.
Choosing the Right Plan
-
You can have a 401k and a Roth IRA as retirement arrangements at the same time. A 401k is tied to a specific employer and at termination of employment, it is possible to roll over a 401k into a Roth IRA. A Roth IRA also has greater flexibility in its uses and in preretirement distributions. A 401k does offer an opportunity for the owner to borrow money from the 401k over its lifetime. This gives the owner the advantage and incentive of paying oneself back instead of a third party.
-
