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Combining IRAs with Other Retirement Plans

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Photo credit: jb

Quite often, we are faced with multiple options for retirement savings. With these decisions, it is important to understand what options are actually available to you – such as, can you contribute to both a 401(k) or 403(b) plan and an IRA in the same year?

Combinations

If you have a retirement plan available to you at your employer (401(k), 403(b) or traditional pension), depending upon your income you may be able to contribute to an IRA (a traditional, deductible IRA) in the same year. See Facts & Figures for the income limits.

Depending on your own circumstances, these income limits may be relatively low, so the likelihood of having the deductible IRA available to you is limited. On the other hand, the income limits for Roth IRA contributions are much higher, so for most this is a viable option.

If your income is higher than the limits for a Roth IRA contribution, you still have another option available to you: non-deductible traditional IRA contribution. In this contribution there is no income limit at all. The primary value you receive from this sort of contribution is in the tax deferral that any growth in your account receives – as your investments accrue growth (hopefully) you will not have to pay tax on that growth until you withdraw the funds.

In addition, there are often cases where you may have more than one employer plan available to you. The limitation here is that you can contribute fully to either a 401(k) plan or a 403(b) plan up to the limit, but only one limit applies to all of these plans you may have available to you. Depending upon your employer, you may also have a 457 (generally only available to governmental units) with a separate annual limit available to you.

Regarding mixing Roth IRA and traditional IRA (either deductible or nondeductible), you also have only one annual contribution limit available to you for all IRA contributions. The combination of all IRA contributions cannot be greater than that limit.

All of these limitations also apply to the catch-up provisions for folks age 50 or better. Use the following table to help you better understand the combinations of accounts that are available to you. To use the table, you first determine which type of account you presently have available to you in the left column – and then move across that row in the table to see which other additional accounts are available to you and with what limitations (the numbers refer to the footnotes below the table). If the answer in the box is “Yes”, you can, without income limitation, contribute to the other plan.

401k 403b 457 IRA Roth Nondeductible
401k 1 1 Yes 2 3 Yes
403b 1 1 Yes 2 3 Yes
457 Yes Yes Yes Yes Yes Yes
IRA 2 2 Yes 4 4 4
Roth 3 3 Yes 4 4 4
Nondeductible Yes Yes Yes 4 4 4
Footnotes:
1: a single contribution limit applies for the year, no matter how many 401(k) plans you are eligible to participate in
2: within income limits, if you are eligible for a 401(k) or 403(b) plan, you may also be eligible to contribute to a deductible IRA
3: within income limits, participation in a 401(k) or 403(b) plan has no impact on Roth IRA contributions
4: for all IRA contributions (Roth, traditional deductible or nondeductible) contributions are limited by the annual limit.

Spousal IRAs

If your spouse is not employed by an employer that sponsors a retirement plan (including a traditional pension), you may be able to make either a traditional deductible IRA contribution or a Roth IRA contribution – up to the limit for the year for all IRA contributions for this individual. This assumes that you have the earned income to support that IRA contribution (and any of your own, if this is applicable).

2 Comments

  1. Jim says:

    Hi Jim, here’s another column to consider for your table: HSA.

    We just got the talk at work about our new choice of HSA as an alternative to tradition PPO. Apparently the HSA account has at least the possibility to accumulate a significant sum by retirement. So this would become one more piece in the puzzle. I think there are some rollover possiblities (whether into or out of), but not sure on the details, just starting to figure it out.

    1. jblankenship says:

      Hi, Jim –

      I wrote an article about rolling funds over to an HSA from an IRA – IRA Transfer to HSA: Does This Make Sense?, plus a couple of articles on the basics of HSAs in general. These may help you with your decision process. Let me know if you have any specific questions… I have not had many dealings with HSAs at all, so I’m not up to speed on some of the questions you may be facing, but will try to address the questions as they arise.

      jb

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