Posted byon August 31, 2017
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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.
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.
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.
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.
Don’t forget to report your contributions on your taxes, and take the Saver’s Credit for Retirement Contributions if you are eligible!
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.