Can I Contribute to a Roth IRA if I Have a 401(a)?
If you are a public sector employer with a mandatory 401a plan, or if you work for a company that has what it calls a 401a plan, it does not prevent you from contributing to your IRA, including a Roth IRA. It also does not disqualify you from maximum participation in other employer-sponsored retirement plans as long as you stay within the overall contribution limits set by the Internal Revenue Service.
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401a Definition
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A 401a defined contribution retirement plan is most often found in public sector employment. However, the 401a label also is typically attached to any employer-sponsored retirement plan in which you -- or any employee -- don't get to choose or change the amount contributed to your account, whether the contribution is made by your employer or deducted from your pay. Often the employer also makes the investment decisions. Although 401a plans typically are money purchase plans, some profit-sharing plans also fit inside a 401a designation.
Money Purchase Plan
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Money purchase plans have required contribution percentages. For example, if your money purchase plan requires a 3 percent contribution of each employee's pay, that contribution may be made either as a deduction from the your paycheck or as an employer contribution in excess of your wages. The IRS set total contribution limits -- the sum of yours and your employer's contributions -- in money purchase plans at $49,000 or 25 percent of your annual pay, whichever is less, for both 2010 and 2011.
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Profit-Sharing Plan
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With a profit-sharing plan, your employer determines a fixed amount to be contributed to the plan. That amount can be either a lump sum to be divided according to a predetermined formula among eligible employees or a flat rate in which each employee receives the same amount.
401k Limits
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If your employer also offers a 401k -- or similar plan, such as a 457 or 403b -- contributions to a 401a do not count against the limits set by the IRS for your elective deferral contributions. For 2010 and 2011, those limits for a 401k are $16,500 per person, although you can contribute an additional $5,500 if you are age 50 or older. Nonetheless, the annual limit for deposits in all your defined contributions plans, including money purchase, profit-sharing and 401k, is $49,000 for 2010 and 2011.
Roth IRA Contributions
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Participating in a 401a plan does not disqualify you from making a Roth IRA contribution, as long as your modified adjusted gross income (MAGI) is less than the limits set by the IRS. In addition, 401a contributions -- like 401k deferrals -- do not count as part of your MAGI. For 2010 and 2011, those income limits are $106,000 if you are single and $167,000 if you are married and filing a joint return. You are allowed to make a proportionate partial contribution if you are single and your income is less than $121,000, or if your income is less than $177,000 and you file jointly.
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