When it comes to planning for retirement, more options often mean more flexibility—and that’s good news for anyone looking to maximize their retirement savings. One common question we hear from account holders is: Can I contribute to both an IRA and a 401(k)? The answer is yes, but there are some important things to understand about contribution limits, tax benefits, and eligibility based on your income.
The Basics of IRAs and 401(k)s
An individual retirement account (IRA) and a 401(k) are both tax-advantaged accounts designed to help you build retirement savings, but they work differently.
- A 401(k) is an employer-sponsored retirement plan, often featuring matching contributions from your employer and higher annual contribution limits.
- A Traditional IRA is opened through a financial institution and offers tax-deferred or tax-free growth depending on whether it’s a Traditional IRA or a Roth IRA.
Many people can contribute to both types of accounts in the same tax year, which may provide additional tax advantages and help diversify your retirement plan.
Contribution Limits and Tax Considerations
For 2025, the IRA contribution limit is $7,000 (or $8,000 if you’re age 50 or older and qualify for catch-up contributions). For 401(k) plans, you can contribute up to $23,000, plus an additional $7,500 if you’re over 50.
However, if you or your spouse are covered by a 401(k), your ability to deduct Traditional IRA contributions on your tax return may be limited based on your modified adjusted gross income (MAGI) and filing status. Roth IRA contributions are also subject to income limits, which could impact your eligibility.
It’s important to understand that contributions to a 401(k) are typically pre-tax, while Roth IRA contributions are made with after-tax dollars. This can affect your taxable income and overall tax bracket in the short term.
Benefits of Contributing to Both
Opening both account types can enhance your retirement savings strategy by offering:
- Tax diversification – Balance between tax-deferred and tax-free withdrawals.
- Higher total savings – Use both contribution buckets to grow your retirement funds.
- Flexible withdrawal strategies – Different rules for required minimum distributions (RMDs) and early withdrawal penalties can give you more options later on.
This approach also allows you to take advantage of company match on your 401(k) (this employer match is often referred to as "free money") while still contributing to a Roth IRA for tax-free withdrawals in retirement.
Key Considerations Before You Contribute
While contributing to both an IRA and a 401(k) can be a smart move for many taxpayers, it’s important to be aware of:
- Deduction limits and how your income tax situation may change based on your combined contributions.
- The type of account that best supports your financial goals and long-term needs.
- The investment options available in each account (such as mutual funds, EFTs, or other retirement plan offerings).
- IRS rules around rollovers from a 401(k) to an IRA if you change jobs or retire.
Setting Up Your IRA Account
At Mainstar Trust, we specialize in custodial services for self-directed IRA accounts, giving individuals and small businesses access to a wider range of investment options beyond what’s typically available in traditional brokerage or workplace retirement plans.
Whether you’re contributing to a Roth IRA, Traditional IRA, or exploring the benefits of both an IRA and a 401(k), we’re here to provide the trusted custodial support you need to manage your retirement accounts with confidence.
Ready to Open an IRA?
Explore your options and take the next step toward reaching your retirement savings goals. Contact the Mainstar Trust team today to learn more about setting up your IRA account/