Key insights
- The question explores the interplay between Roth 401(k) contributions and Roth IRA contributions, specifically regarding the 'earned income' requirement. The scenario highlights a potential misunderstanding of contribution limits and eligibility. While the question itself doesn't directly influence the US market, the underlying confusion about retirement savings rules could lead to suboptimal investment decisions for individuals.
I am just starting this whole investing journey so I am trying to educate myself on these rules.
A hypothetical: 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!