I am just starting this whole investing journey so I am trying to educate myself on these rules.
Let's say I only make 10,000 a year… and I put it ALL into my job's ROTH 401k as I earn the money (100% of each paycheck)…
However, I also want to open a Roth Ira and put the max 7000 allowed into it (I would do this from my personal savings account since I already put 100% of my paychecks this year into my Roth 401k with my employer, so I don't have any actual "earned income" leftover after the 401k to put into the IRA)…
IS THIS EVEN ALLOWED??
From what I understand I can only put "earned income" per year into a Roth Ira, but if I already put all of this year's earned income into my 401k then does that mean I have no earned income left that I am LEGALLY allowed to put into a Roth Ira since that would exceed the amount of money I earned this year (10,000 + 7,000 would be 17,000 total which exceeds my yearly earned income of 10,000)….?
Thanks in advance for anyone's advice/help!
Question about "earned income" when it comes to having both a Roth/Traditional 401k and a Roth/Traditional IRA…
byu/WyzeLady inpersonalfinance
Posted by WyzeLady
7 Comments
> IS THIS EVEN ALLOWED??
Yes, this seemingly “double dip” is allowed since W2 box 1 would be > 7K.
Anyways, check your math on what the “max” for Roth IRAs actually is. The year is 2026. Be careful about working with old rules on maximums.
I would consult with an accountant. Just had a double martini and still trying to figure out your question.
You have more than 10k of earned income so you can put 7k into an IRA yes. They dont track specifically where each dollar came from.
If you make $xx, and put it in a Roth, it’ll be taxed before it gets to you, so you won’t have 10k to put in a Roth.
But if xx = actually 10k, that’s less than the standard deduction, so I’m not sure how that would work with withholding vs refund.
u/BouncyEgg is correct. Since your 401k contributions are to a Roth-401k, the earnings will still show up in Box 1 of your W-2, so you can contribute to a Roth IRA.
Contributions to a Trad-401k would reduce the amount shown in W-2 Box 1, so you wouldn’t be able to contribute to an IRA if you had contributed all of your income to a Trad-401k.
The 2026 IRA contribution limit is $7500, though. It gets indexed for inflation.
Yes, it is allowed. The IRS treats the W-2 box 1 amount as “taxable compensation,” even if you don’t actually receive that amount.
Roth 401k contributions don’t reduce the box 1 amount (that’s what makes them taxable going in, aka Roth), so the box 1 amount can be used to also support a Traditional or Roth IRA contribution.
However, as someone else pointed out, Traditional 401k contributions DO reduce box 1, as do any other pretax deductions like insurance, HSA/FSA, etc. (That’s what makes those items pretax; they don’t show up as taxable on the W-2). So any of those items would reduce your taxable compensation for IRA purposes.
Yeah like others have said. Since it’s Roth 401k contributions it’s earned income since it’s after tax contributions.
It would be different if it were traditional 401k contributions.