Can I contribute to both IRA and 401k?

Can I contribute to both IRA and 401k? This is a question that you might be thinking if you are looking to invest in more than one retirement plan.

So what is the answer? In most cases you would be able to invest in both a 401k plan and an IRA, however this is only true as long as you are not considered a “highly compensated employee” (check with a financial expert to see if you meet this)

If you are able to contribute to both then you will be allowed to invest in your 401k tax free and into an IRA. As long as your income is under $89,000 for a married couple or $55,000 for a single couple you will be able to write off your deposits into your IRA.

However if your income exceeds that then you will not be able to write off your entire deposit. In fact if your income exceeds $109,000 for a married couple or $65,000 if you are single then you will be unable to write off any of your IRA deposits. Note: these are 2009 figures.

In this case you may be better off investing in a Roth IRA instead of a traditional IRA because you cannot write off deposits in a Roth IRA, but will also not be required to pay taxes when you take it out provided you have held it for 5 years and are at least 59 ½.

You may also choose to have all 3 a 401k, an IRA, and a Roth IRA. In this case you may make the full contribution to your 401k, but your Roth IRA and Traditional IRA deposits may not exceed the total amount you are allowed to invest in an IRA.

For example you can deposit $5,000 into an IRA for the year 2009, that means you can choose to deposit $4,000 into a traditional IRA and $1,000 into a Roth IRA, but you may not deposit $4,000 into both because it would exceed your maximum deposit.

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