No Room Left for your 401(k)?

Investing in a 401(k) is a great way to save for retirement, especially if your employer matches a portion of your contributions, but contribution limits do apply. For 2013 the contribution limit is $17,500 ($23,000 if you’re 50 or older). So, what happens if you reach the contribution limit and you want to save more for retirement? You could consider a Roth IRA.

A Roth IRA is a qualified retirement plan available to single tax filers who earn $95,000 or less ($150,000 for joint filers). A contribution limit is phased in once your income exceeds $95,000 and contributions are not allowed once it reaches $110,000 ($160,000 for joint filers). If you meet those requirements, you can put up to $5000 into a Roth IRA each year.

Although contributions made to a Roth are made with taxable dollars (contributions don’t reduce your taxable income like Traditional IRAs or 401k plans), all earnings grow tax free and all withdrawals are tax free. In addition, there are no required distributions with Roth IRAs at age 70 ½ as with Traditional IRAs and 401k plans.

If you also max out your Roth IRA, then you could consider opening a Traditional IRA, however, your contributions will not be tax deductible. Alternatively, you could simply begin building a taxable investment portfolio. The important thing is to keep as much of your money working for you as you can to ensure a secure retirement future.