A work 401(k) is a nice perk that can help you increase your retirement savings. However, if you're also trying to save outside of your employer-sponsored retirement plan, you might run into some problems.
The good news is that you can contribute to an individual retirement account (IRA) even if you also contribute to a 401(k) at work. There are certain limitations you should consider, though.
Although a 401(k) and an IRA will both help you save for your retirement, there are a few important differences. A 401(k) is established by an employer; an IRA is established by an individual. A 401(k) may have a company match contribution, and a 401(k) may have more limited investment options than an IRA.
Check your eligibility
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.
With a traditional IRA, there are specific income limitations for people who are eligible to participate in an employer's retirement plan.
For 2024, the income limits are:
Tax Filing Status | AGI Limit for Full Traditional IRA Contribution Deduction | Phaseout for Traditional IRA Contribution Deduction |
|---|---|---|
Single or head of household | $77,000 | $87,000 |
Married, filing jointly | $123,000 | $143,000 |
Married, filing separately | $0 | $10,000 |
For 2025, the income limits are:
Tax Filing Status | AGI Limit for Full Traditional IRA Contribution Deduction | Phaseout for Traditional IRA Contribution Deduction |
|---|---|---|
Single or head of household | $79,000 | $89,000 |
Married, filing jointly | $126,000 | $146,000 |
Married, filing separately | $0 | $10,000 |
Here's what this means. If you participate in an employer's retirement plan, such as a 401(k), and your adjusted gross income (AGI) is equal to or less than the number in the first column for your tax filing status, you are able to make and deduct a traditional IRA contribution up to the maximum of $7,000 (or $8,000 if you're 50 or older) in both 2024 and 2025.
If your AGI is between the numbers in both columns, you are eligible to deduct a partial traditional IRA contribution. Finally, if your AGI is as much as or more than the phaseout limit in the last column, you are ineligible for the traditional IRA deduction.
Keep in mind these are the limits for taking a traditional IRA deduction. If your income is above the limit, you can still make nondeductible contributions to a traditional IRA. That's useful if you also don't qualify to contribute to a Roth IRA, and you can execute the backdoor Roth IRA strategy.
Contributing to a Roth IRA
Unlike a traditional IRA, Roth IRA contributions are not limited solely because you can participate in your employer's retirement plan. Instead, there is an income limit for Roth IRA contributions that applies to all savers.
For 2024, the income limits for contributing to a Roth IRA are:
Filing Status | Full Contribution AGI Limit | Phaseout Limit |
|---|---|---|
Single or head of household | $146,000 | $161,000 |
Married, filing jointly | $230,000 | $240,000 |
Married, filing separately | $0 | $10,000 |
For 2025, the income limits for contributing to a Roth IRA increase to:
Filing Status | Full Contribution AGI Limit | Phaseout Limit |
|---|---|---|
Single or head of household | $150,000 | $165,000 |
Married, filing jointly | $236,000 | $246,000 |
Married, filing separately | $0 | $10,000 |
Other than the limits for married taxpayers filing separately, the Roth IRA income limits are significantly more generous than the deductible traditional IRA limits for employer-sponsored retirement plan participants.
It's also important to point out that these are the income limits to contribute directly to a Roth IRA. There is no income limit to convert a traditional IRA to a Roth IRA.
Roth IRA contributions are never tax-deductible. You're able to withdraw contributions tax- and penalty-free at any time. Earnings can be withdrawn tax-free after age 59 1/2. That makes a Roth IRA more flexible than a traditional IRA. You'll pay tax on all withdrawals from a traditional IRA, and early withdrawals carry a 10% penalty.
The decision between a Roth IRA and a traditional IRA often comes down to whether you want to pay taxes on those funds now (Roth) or later (traditional). If you expect your taxes to be higher in retirement, use a Roth.
For higher-income earners who don't qualify for a traditional IRA deduction, a Roth IRA is a no-brainer. Roth IRAs also have no required minimum distribution and no maximum contribution age, so if you're saving later in life, a Roth makes a lot of sense.
How much can you contribute to a 401(k) and IRA in the same year?
The 401(k) contribution limit is $23,000 in 2024 and increases to $23,500 in 2025. Workers who are 50 and older can contribute an additional $7,500 as a catch-up contribution in both years. However, in 2025, workers between the ages of 60 to 63 qualify for a higher catch-up contribution of $11,250 under the new Secure Act 2.0 rules.
You and your employer can contribute up to a total combined $69,000 (or $76,500 for those making catch-up contributions) in 2024, and $70,000 (or $77,500 for those making catch-up contributions, and $81,250 for workers ages 60 to 63 who qualify for the higher catch-up contribution) in 2025.
Additionally, you can contribute up to $7,000 to a Roth IRA for 2024 and 2025. People who are 50 and older can make an additional $1,000 catch-up contribution in both years. The only thing that may restrict the amount you can contribute to a Roth IRA is if your adjusted gross income exceeds the IRS limits.
Why you should contribute to an IRA in addition to a 401(k)
There are several key differences between IRAs and employer-sponsored retirement plans such as 401(k)s that can make it worthwhile to contribute to both.
For one thing, IRAs are much more flexible when it comes to your investment choices. With a 401(k), you're typically only allowed to choose from a basket of investment funds. On the other hand, with an IRA, you can invest in virtually any stocks, bonds, or funds you want.
In addition, a Roth IRA can help you diversify your tax advantages and can also provide several other benefits your 401(k) doesn't. This can give you much more control over your taxable income in retirement.
The bottom line is that IRAs can add flexibility to your retirement strategy, so it can certainly be a good idea to use one to supplement your employer-sponsored retirement plan.
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