If you have a 401K do you need a Roth IRA?

If you have a 401K do you need a Roth IRA?

Is it possible to contribute to both a 401(k) and an IRA? Yes, you can have a 401(k) or other employer-sponsored retirement plans at work while also contributing to an individual retirement plan, whether regular or Roth.

Contributing to both a 401(k) and an IRA plan, if you have the funds, could help you achieve your retirement objectives faster while saving money on taxes. However, in addition to the tax benefits that a dual contribution approach may provide, your income and filing status may have an impact on the amounts you are allowed to contribute.

Before you ask, “Can I contribute to a 401(k) and an IRA?” understand more about the rules and restrictions that apply when these two types of accounts are combined.

Can you have both?

Is it possible to save for retirement by contributing to both a 401(k) and an IRA at the same time? If you’re just starting out on your retirement planning path, it’s a reasonable thing to ask. You might be wondering if you can save money in an IRA if you already contribute to a workplace retirement plan.

Perhaps you started your work and have access to a 401(k) for the first time because you opened an IRA in college. If you’ll soon be enrolled in your employer’s retirement plan, you might be wondering whether it’s worth continuing to contribute.

Knowing the basics of 401(k)s and IRAs will help you make the most of these accounts while putting up your retirement strategy, as well as address the most common question of is it possible to have a 401(k) and a Roth IRA, as well as a standard 401(k) and an IRA?

Can you contribute to both accounts?

Traditional IRAs allow you to deduct your contributions from your taxes. The money you put in is pre-tax (meaning you don’t have to pay taxes on it), and contributions grow tax-deferred, so you only have to pay taxes when you take qualifying withdrawals in retirement.

If you’re in a higher tax rate throughout your working years and want to reduce your tax liability now, taking advantage of the tax deduction offered by these tax-deferred plans may be appealing.

So, can you put money into both a 401(k) and an IRA at the same time? Contributions to a 401(k) plan at work and a regular IRA are both possible. There are no rules in the IRS that prevent you from contributing to both. 

However, the amount of IRA contributions you can deduct in this circumstance is limited. You can deduct the entire amount you contribute to an IRA if you meet the following criteria:

  • Your modified adjusted gross income (MAGI) is less than $68,000 and you file as a single or head of household.
  • You’re married and filing jointly, or you’re an eligible widow(er) with a modified adjusted gross income (MAGI) of $109,000 or less.

Over these limits, a partial deduction is allowed, albeit it will eventually phase out completely.

While contributing to both a 401(k) and an IRA plan could help you achieve your retirement goals faster, the amount of IRA contributions you can deduct is limited and your income status could have an impact on how much money you are able to contribute. While it is crucial to start planning for retirement as soon as possible, it is advisable to speak with a financial planner to help you choose a retirement plan that fits your needs and budget. 

Care Financial is a privately owned and operated business providing families, individuals and businesses with comprehensive wealth management strategies. Contact us online at www.carefinancial.com or call us at 251-633-7122.