What about a recharacterization of a roth to a traditional?

Can you contribute to the maximum on both Roth IRA and Roth 401k if your income is under the limit?

• I know that I can contribute to both Roth IRA and regular 401k to the maximum if my income is under the limit. However, as more and more companies offer Roth 401K, I am not sure if I can contribute to the maximum in Roth IRA when I am already contributing to the yearly maximum in my Roth 401K.

• Answer:

  Absolutely you can max out both. In fact, you should if you can. However, I wouldn't do it quite this way unless you're in a pretty low tax bracket. If you're in the 25% bracket or higher, you might consider maxing the Roth IRA, but going with the traditional 401k instead. This is something called "tax diversification". It protects against changes in the tax law in the future. As an extreme example, what if income tax gets completely replaced by sales tax? The tax free withdrawals from your Roth IRA would be pointless, but at least your regular 401k would have enjoyed an upfront tax benefit. Like I said, that's an extreme example, and tax diversification is a long discussion for another day. Whichever your pick, if you max out both, you're way ahead of your peers. Go for it!