Can I Have Both an IRA and a 401(k)?
Yes, you can own both an IRA and a 401(k) simultaneously, and many savers do. The two accounts serve different purposes, have distinct rules, and can work together to strengthen a retirement strategy.
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How They Work Together
A 401(k) is an employer-sponsored plan, while an IRA is an individual account. You can contribute to both in the same year, subject to separate limits. The accounts can be traditional or Roth, and you are not required to choose one type for both.
Contribution Limits for 2024
The IRS sets annual limits that are distinct for each account type.
| Account | 2024 Limit | Catch-Up (Age 50+) |
|---|---|---|
| 401(k) | $23,000 | $7,500 |
| IRA | $7,000 | $1,000 |
These limits apply to contributions, not investment growth. A Roth IRA has the same contribution limit as a traditional IRA, but eligibility depends on income.
Tax Treatment Differences
A traditional 401(k) offers upfront tax deductions on contributions, and withdrawals are taxed as ordinary income. A Roth 401(k) is funded with after-tax dollars, and qualified withdrawals are tax-free. Traditional IRAs may offer a tax deduction depending on income and workplace plan coverage, while Roth IRAs provide tax-free growth and withdrawals under qualified conditions.
Which Account Should You Prioritize?
Many advisors recommend capturing any employer match in the 401(k) first, since it is free money. After that, prioritize based on your tax situation and goals. A common approach is to fund the 401(k) enough to get the full match, then max out the IRA, and return to the 401(k) for additional savings.
Income Limits and Eligibility
401(k) eligibility is set by the employer, not the IRS, and there are no income limits to participate. IRA eligibility is open to anyone with earned income, but deductibility of traditional IRA contributions phases out at higher incomes if you or your spouse are covered by a workplace plan.
Rollovers and Management
You can roll over a 401(k) into an IRA when you leave a job, which can give you more investment options. Keeping both accounts open is also a valid choice. Managing two accounts requires tracking required minimum distributions, which begin at age 73 for traditional accounts.