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Can I Have a 401(k) AND an IRA? Usually, Yes

Can I Have a 401(k) AND an IRA? Usually, Yes

Jenius Bank Team6/5/2025
A woman stands and looks out a window.
Having both a 401k and IRA could help you maximize your retirement savings.Did you know that nearly 51% of Americans are worried that their retirement savings won’t be enough to fund their lifestyles after they leave the workforce? That’s why building your savings now is one of the most important things you can do for your future self.The more money you set aside earlier in your career, the longer it could have to grow in your retirement accounts. But if you really want to maximize your savings and build enough retirement income to fund your lifestyle without having to make sacrifices, opening a single type of retirement account may not be enough.Luckily, you can typically have both a 401(k) and an IRA that you contribute to each year. Everyone’s financial circumstances are unique, so this guide is not financial advice. For that, you may want to speak to a financial adviser about your particular set of financial circumstances.Let’s take a closer look at how these accounts work and why contributing to both may be in your best interest.

Key Takeaways

  • Both IRAs and 401(k)s let you build your retirement savings with regular contributions over time.
  • You’re able to have both a 401(k) and an IRA and make contributions to both accounts as long as you don’t exceed the contribution limits for each account type.
  • Using both accounts may help you build your retirement savings faster or more effectively.

How 401(k)s Work

401(k) accounts are retirement accounts sponsored by your employer. You’re usually able to contribute to these accounts directly from your paycheck on a tax-deferred basis. This means you won’t pay taxes on the money you contribute until you start making withdrawals from the account.These accounts have higher contribution limits than most IRAs, letting you set more aside each year. For 2025, you’re able to contribute $23,500 to the account if you’re under the age of 50 and up to an additional $7,500 if you’re over age 50.Many employers also match a certain percentage of the money you contribute to your account, making it easier to set more aside each year.1

How IRAs Work

IRAs are individual retirement accounts that you can open without an employer sponsoring you. These accounts are available through many large investment houses and some banks and credit unions, making it easy to find an account that fits your needs.Traditional IRAs allow you to contribute money on a tax-deferred basis, much like your 401(k), but if you want to avoid paying taxes on the money you withdraw when you retire, you can open a Roth IRA and make contributions on a post-tax basis. This can be a great option for individuals who think their tax rates will be higher when they retire than they are currently.2The main downside to these accounts is their relatively low contribution limit. You’re able to contribute $7,000 to your IRA in 2025 if you’re under age 50, and $8,000 if you’re 50 and older.3

The Benefits of Contributing to Both an IRA and 401(k)

Opening both accounts lets you maximize your total retirement savings by effectively increasing the amount of money you’re able to contribute each year. But that’s not the only benefit you may see. Let’s take a look at some advantages you may experience by opening a 401(k) through your employer as well as an IRA4:
  • Bigger investment portfolio: When you open a 401(k), you’re limited to the investments that your employer’s administrator approves of. With an IRA, you’ll have more choices and can tailor your portfolio to better fit your goals. This means you’ll have the freedom to invest in a more diverse portfolio, helping you hedge against potential market downturns more effectively.
  • IRAs can move with you: Since 401(k)s are tied to your employer, you’ll typically have to close your account and transfer it to a new 401(k) or roll the balance into an IRA if you leave your job. This can be frustrating, and if you fail to transfer your 401(k) to your new employer or roll it into an IRA quickly enough, you may pay a 10% early withdrawal penalty if your 401(k) administrator cashes out your account and sends you the check.
  • Bigger tax savings: Your 401(k) contributions are typically tax deductible and any contributions you make to an IRA may also be deducted from your taxable income, depending on the type of IRA you open. This could help you save more on your tax liability each year that you contribute to the account.
If you’re looking for a simple way to build your retirement savings more quickly or want to increase the amount of money you can set aside each year, opening a 401(k) and an IRA may be a good choice.

When Should You Use Both Retirement Account Types?

Having both types of accounts is typically a good idea if the opportunity is available. Why? Because IRA contribution limits don’t impact the amount of money you can contribute to your 401(k) account and vice versa. This means you’re free to contribute the maximum amount to each account every year.5But what order should you open your retirement accounts in? Well, it depends.
  • Employer offers contribution match: If your employer offers a company match on a 401(k), opening the 401(k) first and prioritizing your contributions may be more beneficial. Contribute enough to earn the full match on your 401(k) at a minimum.
  • Employer doesn’t offer contribution match: If your employer doesn’t offer a match on what you contribute to the 401(k), you may choose to open an IRA first and start contributing to your 401(k) once you max out your IRA contributions.
Ultimately, the order you open retirement accounts in is a matter of personal preference. If you’re unsure, consider speaking with a financial advisor. Their job is to help you fully understand the benefits and drawbacks of each account type and which contributions to prioritize based on your situation and your goals.

When Should You Have Just a 401(k) or Just an IRA?

Though using both accounts can be helpful for many people, there may be times when having one or the other may be more beneficial. It all depends on your unique circumstances.6You may want to have an IRA only and forego opening a 401(k) if you tend to switch jobs often and don’t have the employer matching benefits (or won’t stay long enough to vest in them).You may want to have a 401(k) and forego opening an IRA if you don’t make enough money to contribute to both accounts. If your employer matches a percentage of your 401(k) contributions, focus on ensuring you can at least contribute that percentage.Consider your finances and your situation before you make your choice. Remember, a financial professional can help you decide between the two accounts if you’re unsure.

Final Thoughts

Both IRAs and 401(k)s are useful tools to help you build retirement savings. But to make sure you’re contributing as much as you can to your retirement funds each month, you’ll want to have an established budget in place from the very beginning. Check out our guide to learn how to create a budget that works for your needs so you could meet your retirement saving goals with ease.
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