You can contribute to both a 401(k) and an IRA, up to each account's maximum annual contribution limit. However, there are income limits that prevent some employees from being eligible to deduct traditional IRA contributions if they are also covered by a 401(k) at work.
How it works: One of the benefits of a traditional IRA is that you can get a tax deduction for your contributions each year. If you contribute, say, $6,500 to a traditional IRA this year, you can claim that contribution on your tax return and reduce your taxable income by that amount. (In fact, 401(k)s offer a very similar tax break: Your 401(k) contributions reduce your taxable income.)
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But there’s a big caveat: If you have a 401(k) or other retirement plan at work, or your spouse does, then your contribution to a traditional IRA may not be deductible. People who have a retirement plan at work need to look at the IRA income limits to see if they qualify to deduct their contribution to a traditional IRA. In some cases, you may be able to deduct a portion of your contribution. (Even if you’re ineligible to deduct your IRA contribution, you can still contribute to an IRA through nondeductible IRAs and a backdoor Roth IRA.)
Note: You can contribute to both a Roth IRA and a 401(k), as long as your income makes you eligible for a Roth.
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Income limits for contributing to both an IRA and a 401(k)
The below table outlines the IRS limits for deducting your contribution to a traditional IRA if you or your spouse are covered by a retirement plan at work.
Filing status | 2023 income range | 2024 income range | Deduction limit |
|---|---|---|---|
Single or head of household (and covered by retirement plan at work) | $73,000 or less. | $77,000 or less. | Full deduction. |
More than $73,000, but less than $83,000. | More than $77,000, but less than $87,000. | Partial deduction. | |
$83,000 or more. | $87,000 or more. | No deduction. | |
Married filing jointly (and covered by retirement plan at work) | $116,000 or less. | $123,000 or less. | Full deduction. |
More than $116,000, but less than $136,000. | More than $123,000, but less than $143,000. | Partial deduction. | |
$136,000 or more. | $143,000 or more. | No deduction. | |
Married filing jointly (spouse covered by retirement plan at work) | $218,000 or less. | $230,000 or less. | Full deduction. |
More than $218,000, but less than $228,000. | More than $230,000, but less than $240,000. | Partial deduction. | |
$228,000 or more. | $240,000 or more. | No deduction. | |
Married filing separately (you or spouse covered by retirement plan at work) | Less than $10,000. | Less than $10,000. | Partial deduction. |
$10,000 or more. | $10,000 or more. | No deduction. |
How to choose between an IRA and a 401(k)
If you have a 401(k) at work, you may be trying to figure out if it makes sense to open up an IRA. First, understand the current annual contribution limits for both accounts:
401(k): You can contribute up to $23,000 in 2024 ($30,500 for those age 50 or older).
IRA: You can contribute up to $7,000 in 2024 ($8,000 if age 50 or older). You can contribute that amount to a traditional IRA or a Roth IRA, or you can divvy up your money into each type of plan. (The IRA contribution limit is a combined annual maximum.)
Here’s one way to approach deciding between a 401(k) and an IRA, assuming you can’t max out both:
If your employer offers a 401(k) match, consider contributing enough to get all of that free money.
Once you’re set up to get the full match in your 401(k), next consider contributing to an IRA. If you’re eligible for the tax deduction, a traditional IRA can offer a lot of benefits beyond that tax break, including access to low-cost investments and low or zero administrative fees. A Roth IRA is another option.
If you’re not eligible to claim the traditional IRA tax deduction or a Roth isn’t right for you, then sticking with your 401(k) might make the most sense.
» Still not sure? Read our road map for choosing between an IRA vs. 401(k)
» Ready to decide? Check out all of our picks for the best IRA accounts
