Yes, it is possible to contribute to both a Roth 401(k) and a Traditional 401(k) as long as your employer offers both options. However, there are some limitations and considerations to keep in mind.
1. Contribution Limits: The total combined contribution limit for both types of 401(k) accounts is $19,500 in 2021. If you are age 50 or older, you can make catch-up contributions of an additional $6,500, bringing the total limit to $26,000.
2. Tax Treatment: Contributions to a Roth 401(k) are made with after-tax dollars, meaning you don't get an immediate tax deduction. However, qualified withdrawals in retirement are tax-free. On the other hand, contributions to a Traditional 401(k) are made with pre-tax dollars, reducing your taxable income for the year. Withdrawals in retirement are taxed as ordinary income.
3. Employer Matching: Some employers may offer matching contributions to your 401(k) account. It's important to note that employer matching contributions are typically made to the Traditional 401(k) portion of your account, not the Roth 401(k) portion.
4. Diversification: Contributing to both a Roth 401(k) and a Traditional 401(k) allows you to diversify your retirement savings. With a Roth 401(k), you have the potential for tax-free withdrawals in retirement, while a Traditional 401(k) provides immediate tax savings.
5. Withdrawal Rules: Withdrawals from a Roth 401(k) are subject to certain rules to qualify for tax-free treatment. Generally, you must be at least 59 1/2 years old and have held the account for at least five years. Withdrawals from a Traditional 401(k) are subject to ordinary income tax and may be subject to a 10% early withdrawal penalty if taken before age 59 1/2.
It's important to consult with a financial advisor or tax professional to determine the best strategy for your individual circumstances. They can help you understand the tax implications and long-term benefits of contributing to both a Roth 401(k) and a Traditional 401(k) based on your specific financial goals and retirement plans.
I hope this helps! Let me know if you have any further questions.