Yes, you can have both accounts, and many people have them. The traditional individual retirement account (IRA) and 401 (k) offer the benefit of tax-deferred retirement savings. 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. Learn more about our mission and values, how we started and what we've achieved since then.
Learn more about SoFi's core values. Before you ask yourself, “Can I contribute to a 401 (k) plan and an IRA? , learn more about the guidelines and restrictions when combining these two types of accounts. Stay up to date with the latest business news and stock market developments. Both 401 (k) plans and IRAs have valuable tax benefits, and you can contribute to both at the same time.
The main difference between 401 (k) and IRAs is that employers offer 401 (k) plans, but people open them (using brokers or banks). IRAs tend to offer more investments; 401 (k) allow for higher annual contributions. You can have a 401 (k) and a Roth IRA at the same time. Contributing to both is not only allowed, but it can be an effective retirement savings strategy.
However, there are some income and contribution limits that determine your eligibility to contribute to both types of accounts. If you have a 401 (k) plan at your workplace, you can also open and annually fund a traditional IRA or a Roth IRA (the latter, depending on your income level). A Roth IRA is a good option if you don't qualify to deduct traditional IRA contributions or if you don't mind giving up the immediate IRA tax deduction in exchange for increasing your investments without taxes and tax-free withdrawals when you retire. Depending on the type of IRA you choose, Roth or traditional, you can get your tax relief now or in the future when you start withdrawing funds for retirement.
So, can you contribute to 401 (k) and IRA plans at the same time? It's possible to make contributions to a 401 (k) plan at work and to a traditional IRA. Both 401 (k) plans and IRAs are designed to be used for retirement, which is why the taxes you pay are deferred (and that's why these accounts are often referred to as tax-deferred accounts). Required minimum distributions or RMDs are minimum amounts that you must withdraw from 401 (k) plans and traditional IRAs. An employment retirement plan affects the degree to which your IRA contributions may be deductible from your taxable income.
After you've contributed up to the IRA limit, think about funding your 401 (k) to get the pre-tax benefit it offers. Instead of investing only in an IRA or your company's retirement plan, think about how you can combine both into a powerful investment strategy. Let's look at an example of how you can combine the power of a 401 (k) and an IRA to accelerate your retirement savings. Contributing to your 401 (k) plan may still be worth more than the amount it can match for the simple reason that company-sponsored plans allow you to save more than an IRA.
While the tax deductibility of traditional IRA contributions may be limited or prohibited, combining these accounts can increase your retirement savings throughout your working years. If your income exceeds certain thresholds, you may not be eligible to contribute to a Roth IRA at all.