Can You Have a 401k and an IRA at the Same Time?

Posted by Madison on August 31, 2017
If you have a 401k at work can you open an IRA? Find out if you can contribute to an IRA and a 401k at the same time!

A common misconception about IRAs – if you have a 401k at work, you can’t open an IRA. It’s false. You can contribute to an IRA and a 401k at the same time!

Let’s take a closer look at investing in both an IRA and a 401k at the same time.

Can You Have a 401k and an IRA at the Same Time?

Yes, you can invest in both an IRA and a 401k (or a Roth 401k and a Roth IRA) at the same time, or any combination of those accounts.

And in some cases, based on the fees in your 401k, an IRA might actually be a better place to invest your money.

Can You Have a 401k and an IRA at the Same Time

Limits on 401k and IRA Contributions

If you want to contribute to both a 401k and an IRA in the same year, the contribution limits are based on your income.

Traditional IRA contributions do not have income limits, but the income limits for a Roth IRA phases out for single filers between $118,000 to $133,000 ($186,000 to $196,000 for married) for 2017, unless you use a Backdoor Roth IRA. See the Roth 401k and Roth IRA Limits for all the contribution limits for 401ks and IRAs.

Which Order to Fund the Accounts

Ideally, you’d want to maximize contributions to both your 401k and your IRA. However, if you aren’t saving the full amount, you’ll have to determine which account is better for your money.

Here’s the strategy that I’ve always used when funding retirement accounts.

  1. Contribute the minimum to the 401k to get the full match.
  2. Contribute to a Roth IRA until you hit the income limits.
  3. Contribute any additional IRA contributions to a traditional IRA, with plans to make a Roth IRA conversion.
  4. Max out the rest of the 401k.
  5. Finally, save the rest in a taxable account.

Don’t forget to report your contributions on your taxes, and take the Saver’s Credit for Retirement Contributions if you are eligible!

Deadline to Open an IRA

The deadline to open an IRA is also the tax deadline. It’s also the last day to contribute to an IRA for the prior tax year.

If you haven’t started an IRA, you can start a new IRA and maximize your contribution. I helped a reader open a small IRA at Scottrade which took less than 10 minutes.

More on 401ks and IRAs





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Comments to Can You Have a 401k and an IRA at the Same Time?

  1. Good article. You can indeed have a 401(k) and IRA at the same time. It’s good that you listed the income limits also for contributions to a Roth.

    To answer “Fashions” question – you can contribute to a Roth at anytime, however April 15 is the last day to make contributions that may be credited for [the prior year]. Any Roth or Traditional IRA contributions AFTER April 15 will go towards [the current year].

    Dean Voelker

  2. I agree 100% with the order you outlined for investing in retirement accounts.

    That being said, I often find myself recommending to friends that are “less passionate” about personal finance to max put as much in their 401ks as possible. I think it is easy for us that are very passionate about this topic to forget that a lot of people are not. In fact, many despise money subjects. So the easier it is and the less they have to think about it, the better.

    At the end of the day, if you invest 15-20% for a solid 40 years, you should be doing alright. 🙂

    Have a great weekend!

    Eric

  3. Madison, can you clarify this a bit. You mean Roth IRA and 401K, not Traditional IRA and 401K. You can’t contribute to both of those at the same time, right?

    PT

    • PT, Actually it’s ok for either the Roth or traditional. You can have any combination of all four if you want.

      To answer your specific question, you can contribute to both a traditional IRA and a 401k at the same time. (You may not be able to deduct the traditional IRA, but that’s a whole separate topic!)

      Madison

      • Good point. Yes, I was referring to the tax deduction. I don’t know why anyone would contribute to a Traditional IRA without getting the deduction. I think that’s why the question (about contributing to both) is often asked…b/c of the deduction issue.

        PT


  4. That is correct. You can contribute to a 401(k) and Traditional IRA. If you have a choice and you are putting in as much as you can for the 401(k) already, my choice would be the Roth. You would already be getting tax deferrment from the 401(k) so the Roth would be a better compliment. If gives you TAX-FREE growth and TAX-FREE withdrawals at retirement.

    Dean Voelker

    • Can I contribute to traditional IRA? I am W-2 employed, participated in 401(k) but there’s no employer’s matching. I am married; filing joint. My spouse has no income for the year. If yes – I can make contribution to traditional IRA for last year; can I get tax deduction? And, if yes – what are the limits? Can you please explain – that would be very helpful.

      Thanks! J

      Jack

  5. I am actually a financial advisor. It may be helpful to contact an advisor, although if you are just getting started, I’d stick with about 3 funds. You want ones that do different things – a large company fun which pays dividends, a medium sized company fund, and a small company fund or an international one.

    Dean Voelker

  6. have a question – hope its not too late. i dont have 401K at work. can i open traditional ira and also roth ira and contribute [the max] to each? (assume i am within income limits)? please advise.

    Joshua

    • Joshua,

      You can contribute to both types if you chose to, but the grand total of both can total no more than 5,000 if you are younger than 50. Once you hit the ripe age of 50 you can contribute an additional 1,000 each year.
      If you don’t have a 401k with your work, I would suggest opening up a simple online brokerage account and investing the money that you would be putting into the 401k into it.

      Fred

  7. I had a 401K at work and was layed off at the end of March. If I fund a traditional IRA is the contribution tax decutible?

    Donna

    • Hi Donna,

      Yes, it is, However, the deposits will be slightly different. With your 401k the deposits are taken straight from your paycheck and your taxable income is reduced right there. For IRA contributions, you will make the deposit from your after-tax income, and then you get your money back during tax time.

      There are ways to reduce your withholdings to balance it out, but it is best to talk to a tax professional if you want to do that.

      Eric

  8. This article has been very helpful. I am interested in doing Step 3 specifically, but have concenrs. If I contributed $5k to the IRA and after the 60 day holdover period, it’s worth $5,500 (hypothetically speaking!) and I convert it to my Roth IRA, will my income for the tax year increase by $5.5k or $500? Inuitively, I would say only the $500 since you’ve already contributed $5k of after-tax money. Will my wirehouse distribution form delineate this at year end? If not, is there a box on the 1040 tax forms that delineates it?

    Emily

  9. I have a question that I don’t think was already covered by others.

    I am on W-2, have participated in 401(k) but there’s no employer’s matching for my 401(k), just soleley did for tax deductions.

    I am married and under 50 & filing joint. My wife has no income. Can I contribute to IRA? And if yes, how much.

    Jack

  10. Why do you say “Traditional IRA contributions do not have income limits,”? Married filing jointly with AGI >= $109,000 cannot get any deduction. Then what’s the point of Traditional IRA?
    But i am looking for following information: i file jointly. income > 109,000. I want to invest in mutual funds and get tax benefits. I was thinking of opening Traditional IRA and investing and reinvesting MF returns back to same account. But looks like i won’t get benefits right? contribution $5000 is not deductible. Will I get tax benefits for reinvested dividends and capital gains?

    DC

    • Will Roth IRA work? Looks like i can invest 5000 in Roth IRA. Oh but those are not deductible also! Will i get tax-deferred benefits if i invest in mutual funds and reinvest the returns (dividends and capital gains)?

      DC

  11. Can you have a 401K and a Roth 401K or are you only able to have one of each ???

    scott johnson

  12. Many Questions….
    I am self employed S corporate thinking about open an 401k but undecided std. or Roth. I was told std. is better suited for me because of two things #1 I am in a higher tax bracket now then when I retired @2 “Tax deferral”. How ever the Roth will be tax free when I retired who cares what the tax rates are!! 2nd, I open an IRA for 2013 and rollover my “old” 401k from my previous employment, should I convert it over to Roth IRA? 3RD, should I give my self a raise W2 to benefit the 25% employer contribution with the 401K???? thanks a head of time
    Neil

    Neil Lim

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