Can You Contribute to Both a 401(k) and an IRA?

Yes, you can contribute to both a workplace 401(k) and an IRA in the same year, as long as you meet each account’s eligibility rules and stay within its separate contribution limits. Contributions to an IRA do not use up the annual limit for your 401(k), and 401(k) contributions do not use up your IRA limit. However, contributions you make to multiple employer plans may need to be combined when checking the applicable workplace-plan limit. Your ability to deduct a traditional IRA contribution or contribute to a Roth IRA can also depend on your income and other circumstances. Using both accounts can give you another way to save and may offer different investment choices or tax treatment.

How the Separate Contribution Limits Work

A 401(k) and an IRA are separate types of retirement accounts, so each has its own annual contribution limit. The limit for an IRA applies across your traditional and Roth IRAs combined, rather than giving you a full separate limit for each type. The workplace-plan limit generally applies to your own contributions across applicable employer plans, so having two jobs or changing jobs during the year does not necessarily give you a new limit.

The Chase guide explains that IRA limits are separate from 401(k) limits. It also notes that employee contributions to multiple employer plans may need to be tracked together. Employer matching contributions are generally treated separately from your own salary deferrals when checking the employee contribution limit, although plan rules and other limits can also matter.

Contribution limits can change from year to year. Check the limit for the tax year in which you are contributing, and keep track of contributions made through every employer. If you change jobs, tell your new plan what you have already contributed during the year so you can avoid exceeding the applicable limit.

Why Contribute to Both Accounts?

A 401(k) is often a convenient place to begin because contributions can be deducted from your paycheck. Some employers also match employee contributions. If yours does, contributing enough to receive the full match can be a useful priority because the match adds money to your retirement savings.

An IRA can complement a workplace plan. It may provide investment options that differ from those in your 401(k), or a different tax treatment through a traditional or Roth account. Your choice and contribution order depend on factors such as your plan’s investment options, your budget, and your tax circumstances.

One possible approach is to contribute enough to your 401(k) to receive the full employer match, then contribute to an IRA if you are eligible and it suits your needs. You could then add more to your 401(k) if your budget allows. This is one approach, not a rule. You do not have to max out either account to benefit from saving consistently.

Traditional and Roth Options Have Different Rules

Some workplace plans offer traditional 401(k) contributions or Roth 401(k) contributions. Traditional contributions generally receive different tax treatment from Roth contributions, with the timing of taxation depending on the account type. Availability depends on your employer’s plan.

Traditional and Roth IRAs also have different tax treatment. Whether a traditional IRA contribution is deductible can depend on your income and whether you or your spouse is covered by a workplace retirement plan. Roth IRA contributions are subject to income eligibility rules. Having a 401(k) does not automatically prevent you from contributing to an IRA, but it can affect the tax treatment or eligibility of particular IRA contributions.

Contributions Are Different from Rollovers

A contribution is new money you put into an account during the year. A rollover is money moved from one retirement account to another, often after leaving a job. A rollover is not the same as a new annual contribution, so moving an old 401(k) balance into an IRA does not by itself mean you have made an IRA contribution.

When you leave a job, options for an old 401(k) may include leaving the money in the plan, moving it to a new employer’s plan if that plan permits it, or rolling it into an IRA. The available options and applicable rules depend on the plan and the type of transfer.

What to Check Before Contributing

Before putting money into both accounts, check whether your employer offers a match and how much you need to contribute to receive it. Review how much you can save consistently after essential expenses. Also check whether you have already contributed to another employer plan during the year and whether you are nearing a limit.

Consider whether an IRA’s investment choices and tax treatment suit your circumstances. Confirm that you meet the rules for the type of IRA you want to fund and check whether a traditional IRA contribution would be deductible. A sustainable contribution schedule can be more useful than setting an amount that strains your monthly budget.

What Changes When You Have More Than One Employer?

If you change jobs or work for more than one employer, track your employee contributions to workplace plans across the year. The key issue is not simply how many jobs you have. It is which plans you can contribute to and how much you have already contributed to plans that share an applicable limit. A person working two full-time jobs may therefore need to consider contributions made through both employers.

Contract work can involve different retirement-plan arrangements from regular employment. Keep records of plan documents and pay statements so you can see what has been contributed and where. Your IRA remains a separate account category, but you still need to meet the IRA’s own eligibility and contribution rules.

*This article is for general informational purposes only and is not legal advice.