401(k) vs. IRA - Should You Pick One or Have Both Retirement Accounts?

Using one or more retirement accounts is one of the best ways to save more money and cut your taxes. But these special, tax-advantaged accounts can also be confusing because they come loaded with rules created by the IRS.

A common question is whether you can or should contribute to both a 401(k) and an IRA. In some cases, having more than one retirement account changes the benefits you receive. So, no matter whether you work for a company that offers a 401(k) or you’re self-employed with a solo 401(k) or a SEP-IRA, it can be a dilemma.

Leveraging a variety of options simultaneously allows you to invest as much as possible, but there are critical pitfalls to avoid. I’ll help you understand the advantages and disadvantages of contributing to multiple types of retirement accounts in the same year.

Can You Contribute to a 401(k) and an IRA in the Same Year?

Many people don’t realize that you can contribute to a 401(k) or a 403(b) and an IRA in the same year. For 2019, you’re allowed to contribute up to $19,000, or $25,000 if you’re over age 50, to most types of workplace retirement accounts.

The IRA contribution limits are $6,000 for either a traditional IRA, a Roth IRA, or a combination of both. And if you’re over 50, you can contribute an additional $1,000, for a total of $7,000.

In theory, you could max out both accounts by contributing a total of $25,000 ($19,000 plus $6,000) if you’re younger than 50. If you’re older, you could save up to $32,000 ($25,000 plus $7,000). 

In general, you must have earned income to qualify for an IRA, and you can’t contribute more than you earn for the year. But if you’re married and file taxes jointly and one of you doesn’t work, the working spouse can make contributions on behalf of the non-working spouse.

See also: How to Make Kids Rich by Investing in an IRA

How to Choose Between a Traditional and a Roth Retirement Account

If you have access to a traditional or a Roth 401(k) at work and are considering making contributions to a traditional or Roth IRA, which type(s) should you choose? What’s best for you depends on various factors, such as:...

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