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The short answer is that you can have both an IRA and a 401(k) plan, and many people do. Contributions to a traditional IRA and 401(k) plan may be tax-deductible, providing tax-deferred savings for retirement.
But bear in mind that there are annual contribution caps on each type of retirement account, and that your IRA contribution may be restricted based on your modified adjusted gross income as well as whether you or your spouse currently have a 401(k) plan.
Maximizing your retirement savings is crucial for securing your financial future. While employer-sponsored plans like 401(k)s are valuable tools, contributing to an IRA can further bolster your retirement nest egg. But if you participate in a 401(k), you might wonder how much you can contribute to an IRA and whether your contributions are tax-deductible.
This guide will delve into the intricacies of IRA contributions for individuals with 401(k)s, providing clear answers to your questions.
Key Takeaways:
- Having a 401(k) doesn’t preclude you from contributing to an IRA.
- Your income determines the deductibility of your traditional IRA contributions.
- Roth IRA contribution limits depend on your income.
- Spousal IRAs allow contributions even if you don’t have earned income.
- Excess IRA contributions incur a 6% excise tax.
Traditional IRA Contribution Limits and Deductibility:
- Contribution limit for 2023: $6,500 ($7,500 if 50 or older)
- Contribution limit for 2024: $7,000 ($8,000 if 50 or older)
- Deductibility depends on your income and whether you’re covered by an employer-sponsored plan.
Roth IRA Contribution Limits:
- Contribution limit for 2023: $6,500 ($7,500 if 50 or older)
- Contribution limit for 2024: $7,000 ($8,000 if 50 or older)
- Contribution limits based on income, regardless of 401(k) participation.
Spousal IRA Contributions:
- Allows contributions for non-working spouses.
- Total combined contributions cannot exceed the taxable compensation reported on a joint tax return.
Penalties for Excess Contributions:
- 6% excise tax on excess contributions not withdrawn by tax filing deadline.
- Investment gains on excess contributions also taxed and subject to early withdrawal penalty if under 59½.
Additional Considerations:
- Even if contributions aren’t deductible, you still benefit from tax-deferred growth in a traditional IRA.
- Non-deductible contributions require filing IRS Form 8606.
- Consult a financial advisor for personalized guidance on maximizing your retirement savings.
By understanding these contribution limits and rules, you can make informed decisions about how to allocate your retirement savings between your 401(k) and IRA, maximizing your retirement income potential.
Remember, these are general guidelines, and individual circumstances may vary. Consult a qualified financial advisor for personalized advice on maximizing your retirement savings.
Can I contribute to a 401(k) plan and a traditional IRA?
The IRS sets annual contribution limits for both IRAs and 401(k) plans. The maximum 401(k) contribution for workers under 50 is $23,000 in 2024; employees over 50 can contribute an additional $7,500 as a catch-up contribution.
The IRA contribution cap for 2024 is $7,000, plus an additional $1,000 for individuals 50 years of age and above. You could get a yearly tax deduction for your contributions to traditional IRAs. A very similar tax benefit is provided by the 401(k) plan: if you make contributions to a traditional plan, your taxable income is reduced.
One important warning: your contribution to a traditional IRA might not be deductible at certain income levels if you or your spouse have a 401(k) or other retirement plan at work. To find out if you can deduct your traditional IRA contribution, check the IRA income limits. You might be able to deduct a portion of your contribution in some circumstances. (You can still make contributions to an IRA through nondeductible IRAs or possibly a Roth IRA even if you aren’t eligible to have your contributions tax deductible.) ).
What you should know about owning a Roth IRA in addition to a 401(k) plan
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Income limits for contributing to a traditional IRA and a 401(k)
If you or your spouse are enrolled in a workplace retirement plan, the IRS deduction limits for traditional IRA contributions are shown in the table below.
|
Filing status |
2023 income range |
2024 income range |
Deduction limit |
|---|---|---|---|
|
Single or head of household (and covered by retirement plan at work) |
$73,000 or less. |
$77,000 or less. |
Full deduction. |
|
More than $73,000, but less than $83,000. |
More than $77,000, but less than $87,000. |
Partial deduction. |
|
|
$83,000 or more. |
$87,000 or more. |
No deduction. |
|
|
Married filing jointly (and covered by retirement plan at work) |
$116,000 or less. |
$123,000 or less. |
Full deduction. |
|
More than $116,000, but less than $136,000. |
More than $123,000, but less than $143,000. |
Partial deduction. |
|
|
$136,000 or more. |
$143,000 or more. |
No deduction. |
|
|
Married filing jointly (spouse covered by retirement plan at work) |
$218,000 or less. |
$230,000 or less. |
Full deduction. |
|
More than $218,000, but less than $228,000. |
More than $230,000, but less than $240,000. |
Partial deduction. |
|
|
$228,000 or more. |
$240,000 or more. |
No deduction. |
|
|
Married filing separately (you or spouse covered by retirement plan at work) |
Less than $10,000. |
Less than $10,000. |
Partial deduction. |
|
$10,000 or more. |
$10,000 or more. |
No deduction. |
» Not sure which to choose? View all of our recommendations for the top IRA accounts.
Can I Contribute to an IRA & 401(k) in the Same Year?
FAQ
How much can I put in an IRA if I already have a 401k?
Can I contribute to a 401 K and IRA in the same year?
Can I deduct my IRA contribution if I have a 401k?
Can I max out my 401k and Roth IRA?
How much money can a 401(k) contribute to an IRA?
However, the amount of money that you can contribute to an IRA is much lower than that for 401 (k)s. For tax years 2023 and 2024, the maximum allowable contribution to a traditional or Roth IRA is $6,500 a year and $7,000, respectively. The catch-up contribution for 2023 and 2024 is $1,000 if you are age 50 or older.
Can I contribute to an IRA if I have a 401(k)?
You can contribute to both an IRA and a 401 (k), but there are limitations you need to know. You can fund an IRA if you have a 401 (k) plan through your employer. Having a workplace retirement account could make you ineligible to deduct traditional IRA contributions.
Can I deduct my 401(k) contribution to a traditional IRA?
But there’s a big caveat: If you have a 401 (k) or other retirement plan at work, or your spouse does, then your contribution to a traditional IRA may not be deductible. People who have a retirement plan at work need to look at the IRA income limits to see if they qualify to deduct their contribution to a traditional IRA.
How much can you contribute to a Roth IRA?
Using our example, you’d divide $11,000 by $15,000: $11,000/$15,000 = 0.7333 Multiply the resulting percentage by $7,000 (or $8,000 if 50 or older). That’s your contribution limit for a Roth IRA. If you’re younger than 50, using our example, your maximum contribution is: 0.7333*$7,000 = $5,133.33.