Can You Contribute To A 401(k) And An IRA At The Same Time?

If you want to optimize your savings opportunities, can you contribute to your 401(k) at work and to an IRA (individual retirement account) at the same time? Forbes.com readers want to know.

P.H. wrote:

My daughter has both a 401(k) at work and also contributes to a Roth IRA. Are there contribution limits here? She is 54 years of age … . Is there an easy answer or understandable IRS publication covering this?

Contributing to Both?

Yes, indeed, the law does allow contributions to both a 401(k) plan at work and an IRA, and yes, there are limits, and yes, there are understandable IRS publications that cover this topic.

The IRS points out on its website page for IRA FAQs in answer to the question “Can I contribute to a traditional or Roth IRA if I’m covered by a retirement plan at work?”: “Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan).”

Contribution limits are not reduced to a Roth or traditional IRA based on 401(k) participation. They are reduced, however, for Roth IRAs (not traditional IRAs) based on earnings (not 401(k) participation).

Roth IRA Contribution Limits

As discussed in my column about Roth IRA contribution limits, the maximum a person can contribute to a Roth IRA in 2022 is $6,000 ($7,000 for those age 50 and up). The extra $1,000 for those age 50 and older (like P.H.’s daughter) is called a “catch-up” contribution.

Filing Status and Income

As for contribution limits, not everyone can contribute to a Roth IRA because of phase-outs due to income caps. In contrast, there are no income caps on contributions to a traditional tax-deferred IRA.

The most P.H.’s daughter can contribute will depend on her modified adjusted gross income (MAGI). Assuming she is single, she can contribute up to the limit for a Roth IRA ($7,000 because she is over 50) if her MAGI is less than $129,000 in 2022. If her MAGI is higher than that but less than $144,000, she can still contribute, but the amount is reduced. (Use Worksheet 2-1 in IRS Publication 590-A for how to calculate MAGI for Roth IRA purposes.)

When MAGI is $144,000 and above, no Roth IRA contribution is permissible. However, there is no comparable MAGI limit for traditional IRAs. That is, someone who cannot contribute to a Roth IRA due to earnings limits can contribute to a traditional IRA. Further, there is no MAGI limit on who can convert from a traditional IRA to a Roth IRA. If you decide to contribute to a traditional IRA and convert to a Roth IRA, be sure to review your plan with your tax adviser before taking action.

As to IRS resources, the Roth IRA chart for 2022 on IRS.gov covers limits for other filings statuses, including couples. There also are details about how to calculate a reduced Roth IRA contribution amount if your MAGI is higher than permitted under current limits.

401(k) Limits

As I discussed in an earlier Forbes post, the limit for contributing to a 401(k) in 2022 is $20,500. The catch-up contribution is $6,500, making the total amount for those 50 and older $27,000. There is no reduction in 401(k) contribution limits based on whether someone contributes to a traditional or Roth IRA.

Other IRS Resources

The IRS has a Roth Comparison Chart that breaks down the differences between a Roth IRA, a designated Roth 401(k) and a pre-tax 401(k). IRS Publication 590-A covers contributing to an IRA.

An Important Reminder

Be sure to consult with a tax adviser about the approach you should take given your situation, as taxes are unique to the individual.

Questions?

To keep up with topics that I cover, be sure to follow me on the forbes.com site (and if you would like to subscribe, check out the red box at the top right). Write to me at forbes@juliejason.com. Include your city and state, and mention that you are a forbes.com reader. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future post.