When saving for retirement, workers should consider contributing to a 401(k) plan and an individual retirement account simultaneously. Both retirement accounts allow you to defer paying income tax on your retirement savings, and contributing to a 401(k) and IRA could significantly reduce your tax bill. However, high earners may be unable to claim a tax deduction on contributions to both accounts in the same year.
If you’re thinking of saving in a 401(k) and IRA, consider the following:
— Contribution limits for 401(k)s and IRAs
— Income limits for traditional IRA contributions
— Saving in a 401(k) and a Roth IRA
— How to decide where to save
Contribution Limits for 401(k)s and IRAs
Employees can defer income tax on up to $23,500 that they contribute to a 401(k) plan in 2025. Those age 50 and older can make additional catch-up contributions of up to $7,500 for a total 401(k) contribution of $31,000. Employees between ages 60 and 63 may qualify for catch-up contributions of up to $11,250 for a total savings of $34,750. An employer may make additional contributions to the 401(k) plan on behalf of its employees or provide matching funds.
IRAs have a much smaller contribution limit of $7,000, plus an additional $1,000 catch-up contribution for workers age 50 and older.
“These contributions are independent of each other, so you can contribute to the maximum allowed,” said Stacey Chin, chief investment officer and private wealth advisor at Treehouse Wealth Advisors in Walnut Creek, California, in an email. To do so, you’ll need to meet specific eligibility requirements. Contributing to both accounts in the same year can allow you to defer income tax on as much as $30,500 if you are 49 or younger and $38,000 at age 50 or older. Those who are 60 to 63 can save up to $41,750.
The tax benefits of maxing out a 401(k) and IRA can be significant. A worker who pays a 22% tax rate and can contribute $33,000 to a traditional 401(k) and IRA will reduce their current tax bill by $7,260. Income tax won’t be due on that money until it is withdrawn from the account.
[Related:Ask a Financial Pro: Should I Roll Over My 401(k) to an Annuity?]
Income Limits for Traditional IRA Contributions
Workers without access to a 401(k) account can make tax-deductible contributions to a traditional IRA regardless of their earnings. Those with a 401(k) at work can save for retirement in a tax-deductible IRA unless their income exceeds certain limits.
Employees with a 401(k) account can’t claim a tax deduction for a 2025 IRA contribution if their income exceeds $89,000 as an individual and $146,000 as a married couple filing jointly. The IRA tax deduction is phased out for individuals earning more than $79,000 and couples earning more than $126,000. If only one member of a married couple has a 401(k) plan, the tax deduction is phased out when the couple’s income is between $236,000 and $246,000.
“If you have access to a 401(k), having an IRA gets tricky for people or families with high incomes,” said Haley O’Steen, assistant professor of finance at Pepperdine University in Malibu, California, in an email. “The higher your income, the less deductible IRA contributions you can make. This doesn’t mean you can’t make contributions, but those contributions are taxed immediately, as with a Roth IRA.”
[Related:What Is a Solo 401(k) Plan?]
Saving in a 401(k) and Roth IRA
You can also save for retirement in a 401(k) and Roth IRA in the same year. An after-tax Roth IRA has higher income limits than a traditional IRA. Those who earn less than $150,000 as an individual and $236,000 as a married couple can make Roth IRA contributions in 2025. The contribution amount is phased out for those earning more than $165,000 as an individual and $246,000 as a married couple. The Roth IRA income limits apply regardless of whether you have a 401(k) at work, but there are some ways around them, such as using a backdoor Roth or mega backdoor Roth strategy.
Contributing to a Roth IRA won’t get you a tax break in the year you contribute, but you can take tax-free withdrawals in retirement. Saving in a traditional 401(k) and a Roth IRA adds tax diversification to your portfolio. When you have a traditional and Roth retirement account, you get to decide how much to withdraw from taxable and tax-free accounts each year in retirement, which can help you manage your tax bill.
[Read: What the Rothification of Retirement Accounts Means for You]
How to Decide Where to Save
If you can’t max out both retirement accounts, you may have to prioritize. “If your employer offers a match on 401(k) contributions, try to contribute at least enough to get the full match,” Chin said. “This is essentially free money and can significantly increase your retirement savings.”
After that, compare your 401(k) plan to an IRA to see which has better investment options and lower fees. “Often a 401(k) has more limited investment options than an IRA,” Chin said. “For more transparency and control, an IRA may be a better place to save. After leaving a job, rolling a 401(k) into an IRA may make more sense for many individuals.”
You can also evaluate your current income and what you’ll receive during retirement. “The amount of taxes you pay now and later in retirement is important when deciding how to save,” said Steven Kibbel, a certified financial planner at Kibbel Financial Planning in Franklin, Tennessee, in an email. “With pretax savings, the money goes in without paying taxes up front. Upon retirement, withdrawals are taxed but usually at a lower rate than while working.”
More from U.S. News
What Is the Average Retirement Savings Balance by Age?
Should You Let AI Manage Your Retirement Plan?
What Is the 25x Retirement Rule?
How to Save in a 401(k) and IRA in the Same Year originally appeared on usnews.com
Update 05/09/25: This story was published at an earlier date and has been updated with new information.
