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I am a new college graduate who had a part-time job and earned $8,000 with no benefits during my final spring semester. I put my first $7,000 of earnings into a Roth IRA. After graduation, I got a full-time job with benefits including a 401(k) plan with 50% company match. Am I allowed to participate in the 401(k) plan this year, as my Roth IRA contribution was made prior to the availability of the 401(k) plan? Please explain the rules.
– Raymond
Congratulations on graduating from college and landing your new job. The fact that you’re already saving for retirement is a good indication that you’re building a strong financial foundation. If you’re a traditional-aged college graduate (in your early 20s), you are really setting yourself up for success by contributing to tax-advantaged retirement accounts.
And, I have some good news for you: yes, you’ll be able to participate in the 401(k) plan at work provided you meet your employer’s eligibility requirements. Your Roth IRA contribution has no bearing on it. (And if you need help saving, investing or planning for retirement, consider working with a financial advisor.)
Roth IRAs and 401(k)s both have annual contribution limits that you should keep in mind.
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IRA limit: If you’re under 50, you can make up to $7,000 in IRA contributions in 2024 and 2025. This limit applies to either a traditional and Roth IRA, or a combination of both.
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401(k) limit: If you’re under 50, you can contribute up to $23,000 to a 401(k) or similar workplace retirement plan in 2024. That limit increases to $23,500 in 2025.
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Catch-up contributions: If you are 50 or older, you can contribute an extra $1,000 to an IRA and $7,500 to a 401(k) or similar plan.
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Employer matches: Your employer can also contribute matching dollars to your 401(k), but their contribution when added to yours cannot exceed $69,000 in 2024. That limit increases to $70,000 in 2025.
These limits are independent of each other. That means contributing to a Roth IRA or 401(k) doesn’t impact your ability to contribute to the other. People sometimes mistakenly believe that they do. This confusion is typically related to Roth contributions. However, even if you contribute the full limit of $23,000 to a Roth 401(k) in 2024, you can still contribute the full $7,000 into a Roth IRA. You simply need to have enough earned income to cover both contributions.
However, Roth IRA contributions are subject to income limits: only single filers with modified adjusted gross incomes (MAGI) of less than $146,000 in 2024 and $150,000 in 2025 have the ability to make a full contribution to a Roth IRA. Those with MAGIs between $146,000 and $161,000 can make a partial Roth IRA contribution in 2024. In 2025, that phaseout range increases to $150,000 and $165,000.
Keep in mind that there is no income limit that affects Roth 401(k) contributions. (A financial advisor can assess your whole financial situation and help you plan out your contributions to both Roth and traditional retirement accounts.)
The eligibility requirements of your company’s 401(k) plan are more likely to prevent you from participating – although only temporarily. There are minimum IRS rules concerning participation that your employer must follow, but they may allow for simpler qualification when it is in your favor. Some plans allow you to participate immediately upon your hiring, but not all do.
Employees are eligible to participate in a workplace retirement plan if:
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They are at least 21 years old, and;
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They have been employed for at least one year.
However, 401(k) plan are permitted to adopt even less restrictive eligibility rules. For example, a plan can allow employees to participate if they are 20 years old and have been employed for just six months.
You can still contribute to your 401(k) even though you maxed out a Roth IRA earlier in the year. As long as you stay under the Roth IRA income limit, but have enough earned income to support it, you can continue to contribute to both accounts going forward.
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Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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If you’re interested in hiring a financial advisor, you’ll probably want to find someone whose services and expertise align with your own areas of need. While some advisors exclusively provide investment advice, others may offer more specialized services like estate planning, family office services and tax planning, in addition to portfolio management.
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Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
Photo credit: ©iStock.com/jygallery, ©iStock.com/jeffbergen
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