Workplace and individual retirement accounts are crucial parts of your retirement savings. By supplementing your workplace retirement account, you can boost your retirement savings. IRAs can give more investment options than the 401 (k) plan. As with 401 (k), you may contribute pre-tax dollars to a traditional IRA and enjoy benefits from tax-deferred growth. However, pretax dollars can only be contributed when you are below certain income limits.
When planning retirement, questions arise—can you contribute to a 401 (k) and IRA? While you can contribute to both, you must consider a few things.
401(k) and IRA Contribution Limits for 2025
| Account Type | Contribution Limit |
| Traditional IRA | $7,000 ($8,000 for individuals aged over 50) |
| Roth IRA | $7,000 ($8,000 for individuals aged over 50) |
| 401 (k) | $23,000 – individuals over 50 may contribute up to an additional $7,500 annually. Individuals aged 60 to 63 may contribute up to an extra $11,250 annually in catch-up contributions. |
Eligibility for Retirement Accounts
| Account Type | Eligibility |
| Traditional IRA | Anybody with an earned income can participate. According to the 2019 SECURE Act, traditional IRA owners with earned income can continue making contributions regardless of age. |
| Roth IRA | Anybody with an earned income can contribute at any age. However, there are eligibility restrictions depending on filing status and income. |
| Pre-tax 401 (k) | Your employer must provide a 401 (k). |
| Roth 401 (k) | Your employer must provide a 401 (k) that enables Roth contributions. Unlike a Roth IRA, it has no income limits. |
Taxes on Withdrawals
| Account Type | Taxes on Withdrawals |
| Traditional IRA | On getting a tax deduction for each contribution, all withdrawals of an individual are taxed at state and federal income tax rates. |
| Roth IRA | No taxes for qualified distributions. |
| Pre-tax 401 (k) | All withdrawals of an individual are taxed at state and federal income tax rates. |
| Roth 401 (k) | No taxes for qualified distributions. |
Penalties
| Account Type | Penalties |
| Traditional IRA | A 10% penalty applies on withdrawals made before age 59½, although there are exceptions. |
| Roth IRA | A 10% penalty applies on withdrawals of investment earnings made before age 59½ or before meeting the 5-year rule, with some exceptions. |
| Pre-tax 401 (k) | A 10% penalty applies on withdrawals made before age 59½, with some exceptions. |
| Pre-tax 401 (k) | A 10% penalty applies on withdrawals of earnings before age 59½ or before meeting the 5-year rule. |
Required Minimum Distributions
| Account Type | RMDs |
| Traditional IRA | Usually, an individual must take their first RMD by April 1 of the year following the calendar year when they reach age 73. They need to take their RMDs by December 31 after the first year. |
| Roth IRA | RMDs are not necessary from designated Roth accounts. |
| Pre-tax 401 (k) | Usually, an individual must take their RMD by April 1 following the later of the calendar year when they reach age 73 or retire if their plan allows it. They need to take RMDs by December 31. They need not take RMDs if employed. |
| Roth 410 (k) | RMDs are not necessary from designated Roth accounts. |
Note: Contribution limits are only applicable to the total contributions to all retirement accounts, either an IRA or 401 (k), respectively. Since 2006, the Roth option has become available for 401 (k)s and IRAs.
Check these limits, as you will be penalized for contributing more to your IRA accounts than allowed (common among people making Roth contributions). The penalty is a tax on the excess contributions for each year the contributions remain in the account.
If you change jobs throughout the year, you may end up putting too much into a 401 (k). However, it happens seldom when the individual is fully employed at one company for the entire year.
In either scenario, individuals have until April 15 of the following year to take away the excess funds. Missing the deadline necessitates a tax professional to calculate tax liability.
IRA deduction limits for 2025
You are likely to face some limits on your ability to deduct your contributions based on your income if you save with both a 401 (k) and a traditional IRA. Roth contributions cannot be deducted.
Make pre-tax IRA contributions to save on taxes and invest for retirement. If your Modified Adjusted Gross Income (MAGI) is above the threshold, your contribution will become nondeductible. You may seek better strategies instead of making nondeductible contributions, such as a Roth IRA and a taxable brokerage account.
Conclusion
Whether you want extra tax deductions or need a way to boost savings, consult with Jarrar CPA for more information to understand if an IRA will be a better fit for you.
Summary: Do you want to know more about your 401 (k) and IRA limits? Find out more in detail with Jarrar CPA. Our blog brings you all the information you need.
