Can I Have a 401K and an IRA?

Are you planning for your retirement? You may wonder if you can have a 401K and an IRA. Technically, the answer is yes. However, there are some important considerations to take into account before deciding whether or not to pursue both options.

Also, the decision may come down to your individual financial goals and circumstances and requires careful analysis of the benefits and drawbacks of each type of account.

So, let’s dive deeper into this topic and explore the nuances of navigating these two popular retirement savings vehicles.

Advisory – with a recession looming, make sure to read our gold IRA rollover guide to see how you can protect your retirement with precious metals.

Can You Have Both a 401(k) and an IRA?

One of the many perks of having a job is the opportunity to contribute to a 401(k) plan and increase your retirement savings. However, you may encounter roadblocks if you want to save more outside of your employer-sponsored project.

You can still contribute to an IRA (Individual Retirement Account) even if you already contribute to a 401(k) at work. This can provide additional benefits, but it’s essential to consider certain limitations that come with this strategy.

It’s worth noting that both 401(k) and IRA accounts can help you save for retirement, but they have essential differences. A 401(k) is typically established by your employer, while any individual can open an IRA. Additionally, some employers offer matching contributions to your 401(k), which can be a valuable benefit.

However, an IRA can offer greater investment flexibility and potentially lower fees than a 401(k). This is because the investment options for a 401(k) are typically limited to a pre-selected menu of funds chosen by your employer. An IRA can offer a broader range of investment options and allow you to select your investments.

It’s essential to consider your retirement goals and investment options carefully before deciding how much to contribute to each account. Depending on your income and other factors, there may be certain contribution limits that you need to adhere to when contributing to both a 401(k) and an IRA.

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How to Choose Between an IRA and a 401(k)

Early Retirement

Choosing between an IRA and a 401(k) can be confusing, but it’s an important decision when saving for retirement. Both types of accounts offer tax benefits and help you save for the future, but they have different contribution limits, investment options, and employer contributions. Here are the steps to help you choose between an IRA and a 401(k):

·        Understand the contribution limits

For 2023, the maximum contribution limit for a 401(k) is $19,500 ($26,000 if you are 50 or older), while for an IRA, it is $6,500 ($7,500 if you are 50 or older). Knowing these limits can help determine how much you can save in each account.

·        Know your employer’s matching policy

If your employer offers a 401(k) plan, find out if they offer a match. If so, try contributing enough to get the full match because it’s free money.

·        Consider the investment options

A 401(k) usually has limited investment options, whereas an IRA offers a broader range. An IRA might be better if you prefer more control over your investment options.

·        Consider the tax implications

With a traditional IRA and 401(k), contributions are tax-deductible, meaning you can reduce your taxable income. With a Roth IRA and Roth 401(k), contributions are made with after-tax dollars, but withdrawals are tax-free. Consider your tax bracket and expected future tax bracket when deciding which option to choose.

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·        Evaluate the fees

Both types of accounts can come with fees, such as administrative fees and fund expenses. Compare the costs for each account and choose the one with lower prices.

·        Consider your financial goals

Ultimately, you should choose the account that aligns with your goals. An IRA might be better if you want more control over your investments and flexibility regarding contributions and withdrawals. If you’re going to take advantage of the employer match, have a higher contribution limit, and prefer to have your savings automatically deducted from your paycheck, a 401(k) might be a better option.

Benefits & Drawbacks of 401(k)

Retirement planning is essential to financial planning, and a 401(k) is one of the most popular employer-sponsored retirement plans. However, like any other investment option, a 401(k) has benefits and drawbacks.

One of the significant benefits of a 401(k) plan is its relatively large contribution limits, which allow employees to save a substantial amount of money toward retirement. Additionally, many employers offer a matching contribution to encourage employees to save for retirement. If your employer offers a match, it’s crucial to contribute at least enough to receive the entire match. Otherwise, you would be missing out on free money.

However, one of the drawbacks of a 401(k) plan is that investment options are limited to those offered by the plan. While many companies now provide diverse investment choices, a limited selection and high fees still hinder some 401(k) plans. It’s crucial to research and understand the investment options available in your 401(k) plan before making investment decisions.

For 2023, the contribution limit for a 401(k) is $22,500. Those aged 50 or over can make an additional catch-up contribution of up to $7,500. It’s essential to note that your plan may restrict contributions to a lower amount.

Benefits of 401K

Benefits & Drawbacks of Individual Retirement Accounts (IRAs)

IRAs offer a wide range of investment choices, allowing you to invest in various assets such as stocks, bonds, mutual funds, ETFs, etc. Unlike a 401(k) plan, you can choose any provider that offers the investment you’re interested in, making it easier to find low-cost, high-performing options.

However, the maximum amount you can contribute to an IRA is significantly lower than a 401(k) plan. For the tax years 2022 and 2023, the maximum allowable contribution to a traditional or Roth IRA is $6,000 and $6,500, respectively. If you are 50 or older, you can make an additional catch-up contribution of $1,000 in both years. It’s important to note that the contribution limit applies to your IRAs’ total combined amount if you have both types of IRAs.

A traditional IRA only provides the added advantage of tax-deductible contributions if you meet the modified adjusted gross income (MAGI) requirements. If your salary exceeds a certain amount and you have a workplace retirement plan, the tax deduction may also be subject to a phase-out.

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Frequently Asked Questions

Q: Can I contribute to a 401(k) and an IRA?

You can contribute to a 401(k) and an IRA simultaneously. There are no restrictions on contributing to both retirement accounts as long as you meet the eligibility requirements and stay within the income limits.

Q: What are the contribution limits for a 401(k) and an IRA?

For 2023, the 401(k) contribution limit is $22,500, with an additional catch-up contribution of $7,500 if you’re 50 or older. The contribution limit for an IRA is $6,500, with an additional catch-up contribution of $1,000 if you’re 50 or older.

Q: What are the advantages of having a 401(k) and an IRA?

Contributing to both a 401(k) and an IRA can help you maximize your retirement savings and diversify your investment portfolio. You can take advantage of any employer matching contributions to your 401(k) while also benefiting from the tax advantages and investment flexibility of an IRA.

Q: Are there any disadvantages to having a 401(k) and an IRA?

One potential disadvantage of having both types of accounts is that managing your investments across multiple accounts can be difficult. Additionally, having a 401(k) and an IRA may limit your eligibility for certain tax deductions or credits.

Q: Which type of account should I prioritize if I can’t max out both?

If you can’t max out both accounts, it’s generally recommended that you contribute enough to your 401(k) to get any employer-matching contributions first, as that is essentially free money. After that, you may want to prioritize contributing to an IRA if you’re eligible for the tax benefits, such as a tax deduction for traditional IRA contributions or tax-free withdrawals from a Roth IRA in retirement.

Final Thoughts

Having a 401(k) and an IRA is possible, which can help boost your retirement savings. While each plan has benefits and drawbacks, understanding your options and contribution limits can help you decide how to save for retirement.

Remember to prioritize taking full advantage of any employer match in your 401(k), and consider opening an IRA if you have additional funds to save.

Planning and wise investment choices allow you to set yourself up for a secure and comfortable retirement.

Tim Schmidt


Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He started IRA Investing to share his expertise in using his Self-Directed IRA for alternative investments. His views on retirement investing have been highlighted in USA Today, Business Insider, Tech Times, and more. He invested with Goldco.