Can You Invest in Both an IRA and 401K?

You can invest in both an IRA and 401K.  In fact, it’s a fantastic investment strategy if you handle it correctly.

If you are looking for places to stash cash for retirement tax free, asking can you invest in both an IRA and 401K is a great question - and the answer is that you can, provided you meet the requirements for investing in both. 

• You can invest in an IRA if you make below a set amount. Those amounts vary depending on your income and can change yearly but up-to-date information can be found on the IRS website for the year in question.
• You can invest in a 401K if your employer offers one. You can usually invest up to a set percentage of your income.

The thing to realize about both 401k accounts and IRA accounts is that both have maximum allowable contributions per year, meaning you are only allowed to put in a certain amount before you’ll suffer a tax penalty.

This is precisely why many people choose to open one of each account – you’re essentially doubling the amount you can put away for your retirement tax free.

Does One Account Affect the Other?

Knowing there are contribution limits may lead you to your next question- can you invest in both an IRA and 401K up to the maximums or does investing in one impact how much you can invest in another? Fortunately, the total amount invested in both accounts is not added together. In other words, you are allowed up to the maximum in each separate account.

The Benefits of Investing in a 401K and IRA

Most of us are offered a 401k plan through our employers. All of us, employed or not, have the option of opening an independent IRA account. 

• 401k plans through employers are great investment options because the invested funds are not taxed;
• This is also the case with regular and SEP-IRAs (although with Roth IRAs you pay taxes on money you invest, but not on money you take out.)

Both have fantastic growth potential, and those who choose to invest in both types of accounts have the added benefit of a bit of investment freedom.

• With your IRA, you can generally invest in anything the brokerage house has to offer, so you can buy any stocks or other investments you like.
• Some 401Ks, on the other hand, limit your options a bit more. Of course, you should still make sure you invest carefully and have the right investment mix that allows for growth without being too risky.

If you have any questions about setting up or managing either account it would be a smart decision to set a meeting with a financial advisor in order to get yourself started out on the right foot. Holding both a 401k plan and an IRA account can be a good decision for your future, so take full advantage of it by handling the accounts with well researched decisions well into the future.