Can I Contribute to My 401(k) & My IRA Account in the Same Year?

Both the 401(k) and the individual retirement account (IRA) provide you with a way to make tax-deductible contributions to your retirement. Many people wish to contribute to both of these types of accounts in a single year. In some situations, you could contribute to both in the same year without any issues, although this is not always possible.

Eligibility

• One of the key variables that determines if you can contribute to both accounts is whether your spouse is covered by a retirement plan at work. If you are single, you can contribute to both accounts. If you are married and your spouse is not covered by a plan at work, you can contribute to both types of accounts. If you are married and your spouse is covered, you have to make less than $167,000 per year combined to make a full contribution, as of 2010.

Nondeductible IRA

• If you max out your 401(k) contribution, you do have another option even if you have a high income. Regardless of what your income is, you can contribute to a nondeductible IRA. With this type of IRA, you do not have the ability to deduct any of the money that you put into the account from your taxes. You can contribute $5,000 per year for you and another $5,000 per year for your spouse.

Roth IRA

• If you make less than $105,000 per year as an individual or $167,000 as a couple, you can contribute fully to a Roth IRA, as of 2010. If you make between $105,000 per year and $120,000 per year as an individual, you can make a partial contribution. Couples can make partial contributions when they make between $167,000 per year and $177,000 per year. The Roth IRA allows you to avoid paying taxes on your money when you reach retirement.

Contribution Limits

• If you are able to contribute to both a 401(k) and an IRA, you have to do so within the contribution limits of each plan. Each plan has an annual limit that you must stay within to make contributions. As of 2010, the annual maximum contribution for a 401(k) is $16,500. If you are over the age of 50, that contribution limit increases to $22,000 per year. With IRAs, the numbers are $5,000 per year, or $6,000 per year over 50.

Considerations

• As a general rule, it makes sense to max out your 401(k) contribution before putting any money into an IRA. This is true because most 401(k) plans come with matching contributions from your employer. When you put money into your account, your employer may match your contribution up to a certain amount. This gives you free money that you can use to invest and ultimately spend during retirement.