Yes, you can contribute to both a 401(k) and an IRA, and potentially max out both accounts, depending on your income and other factors. This strategy can help you save more for retirement and take advantage of the tax benefits offered by both types of accounts.
Contribution Limits for 401(k) and IRA Accounts:
- 401(k):
- Employee contribution limit: $23,000 for 2024 ($30,000 for those 50 and older)
- Employer contribution limit: $66,000 for 2024 ($73,500 for those 50 and older)
- Combined employee and employer contribution limit: $66,000 for 2024 ($73,500 for those 50 and older)
- IRA:
- Contribution limit: $7,000 for 2024 ($8,000 for those 50 and older)
How to Maximize Contributions to Both Accounts:
- Contribute to your 401(k) up to the employer match: If your employer offers a 401(k) match, contribute enough to receive the full match. This is essentially free money, so you shouldn’t miss out on it.
- Contribute to your IRA: If you haven’t maxed out your 401(k) contributions, you can contribute to your IRA up to the annual limit. This will give you additional tax benefits and help you save more for retirement.
- Consider a Roth IRA: If you’re eligible to contribute to a Roth IRA, you may want to consider it instead of a traditional IRA. Roth IRA contributions aren’t tax-deductible, but qualified withdrawals are tax-free in retirement.
- Track your contributions: Keep track of your contributions to both your 401(k) and IRA to ensure you don’t exceed the annual limits.
Tax Benefits of Contributing to Both Accounts:
- 401(k):
- Traditional 401(k): Contributions are tax-deductible, reducing your taxable income.
- Roth 401(k): Contributions are not tax-deductible, but qualified withdrawals are tax-free in retirement.
- IRA:
- Traditional IRA: Contributions may be tax-deductible, depending on your income and whether you or your spouse are covered by a retirement plan at work.
- Roth IRA: Contributions are not tax-deductible, but qualified withdrawals are tax-free in retirement.
Additional Considerations:
- Income limits for IRA contributions: If you or your spouse are covered by a retirement plan at work, your ability to deduct traditional IRA contributions may be limited based on your income.
- Investment options: The investment options available in your 401(k) and IRA may vary. Consider the fees, expenses, and investment choices before deciding where to invest your money.
- Contribution deadlines: The deadline to contribute to your IRA for the 2024 tax year is April 18, 2025. The deadline to contribute to your 401(k) for the 2024 calendar year is December 31, 2024.
Maxing out both your 401(k) and IRA can be a great way to save for retirement and take advantage of tax benefits. By following the steps outlined above, you can develop a strategy to maximize your contributions to both accounts and reach your retirement goals.
IRA Eligibility and Contribution Limits
For the tax year and 2022, the annual contribution limits for both traditional and Roth IRAs are $6,000, plus a $1,000 catch-up contribution for individuals 50 and over. The upper limits in 2023 are $6,500 for individuals under 50 and $7,500 for those over 50.
You can have both a traditional and a Roth IRA, for example, and divide your contributions between the two types of IRAs. However, the total amount you contribute cannot exceed the cap for that particular year. There are additional differences between Traditional and Roth IRA contribution rules.
Roth IRAs
There is no initial tax benefit from Roth IRAs, and it makes no difference if you are covered by an employer plan. Your income for the year and your status as a tax filer will determine how much, if anything, you can contribute.
This table shows the current income thresholds:
| Roth IRA Contributions for 2023 | ||||
|---|---|---|---|---|
| Tax-filing status | Income for full contribution | Income for partial contribution | No contribution allowed | Contribution limit |
| Single | Less than $138,000 | $138,000 to $153,000 | More than $153,000 | $6,500 + $1,000 more if youre 50+ |
| Married, filing jointly | Less than $218,000 | $218,000 to $228,000 | More than $228,000 | $6,500 + $1,000 more if youre 50+ |
| Married, filing separately | $0 | $0 to $10,000 | More than $10,000 | $6,500 + $1,000 more if youre 50+ |
| Roth IRA Contributions for 2024 | ||||
|---|---|---|---|---|
| Tax-filing status | Income for full contribution | Income for partial contribution | No contribution allowed | Contribution limit |
| Single | Less than $146,000 | $146,000 to $161,000 | More than $161,000 | $7,000 + $1,000 more if youre 50+ |
| Married, filing jointly | Less than $230,000 | $230,000 to $240,000 | More than $240,000 | $7,000 each + $1,000 more if youre 50+ |
| Married, filing separately | $0 | $0 to $10,000 | More than $10,000 | $7,000 + $1,000 more if youre 50+ |
How to Max Out my 401(k) and IRA in 2023?
FAQ
How much can I put in an IRA if I already have a 401k?
Can you max out your IRA and 401k in the same year?
Can you max out a 401k and a Simple IRA in the same year?
How many people max out 401k and IRA?
Should you max out both a 401(k) and an IRA?
Contributing to both types of accounts in the same year can allow you to defer income tax on as much as $25,500 if you are 49 or younger and $33,000 at age 50 or older. The tax benefits of maxing out both a 401 (k) and IRA can be significant.
Can a 401(k) and a Roth IRA be combined?
You can contribute to both a 401 (k) and a Roth IRA in the same year. Making 401 (k) contributions could make those with high salaries eligible to fund a Roth IRA. A Roth IRA offers greater flexibility than most retirement accounts. If your employer offers a 401 (k) plan, there may still be room in your retirement savings for a Roth IRA.
Is a 401(k) better than an IRA?
A 401 (k) may have a company match contribution, and a 401 (k) may have more limited investment options than an IRA. If you have a 401 (k) or similar retirement plan at work, your eligibility to contribute to an IRA and take a tax deduction depends on your income and which type of IRA you’d like to contribute to — traditional or Roth IRA.
Can I have a 401(k) and Ira?
Yes, you can have both accounts and many people do. The traditional individual retirement account (IRA) and 401 (k) provide the benefit of tax-deferred savings for retirement. Depending on your tax situation, you may also be able to receive a tax deduction for the amount you contribute to a 401 (k) and IRA each tax year.