4 Reasons Why You Might Want an IRA in Addition to Your 401(k)

What we’ll cover:

• Taking advantage of your company’s 401(k) plan – especially if there's matching – can be a good way to save for retirement
• Having a 401(k) doesn’t mean you should ignore other retirement vehicles – adding an IRA to your retirement portfolio, could offer potential tax benefits
• Saving for retirement means finding an investment combination that makes the most sense for your financial situation and savings goals

If you have a 401(k) retirement plan offered through your employer, you’re probably well aware of the benefits of using it as a good source for retirement savings. Contributing to a 401(k) plan is usually a no-brainer: you can typically set up automatic contributions, the money is taken out of your paycheck before you even see it, and your contributions are taken out pre-tax.

If your employer matches some of your contributions, it can make even more sense to make 401(k) contributions. For example, a match of 50 cents on the dollar is like getting an immediate 50% return on that money (although employers typically have limitations on how much they match). As they say, not taking advantage of a match is essentially like leaving money on the table, and no one wants to do that! 

Remember that even if you already have a 401(k) plan through your employer, it can still be worth checking out other retirement vehicles, like an Individual Retirement Account (IRA) to potentially add to your 401(k). That’s right – generally, you can add an IRA in addition to an existing 401(k).

It can be helpful to learn about all of the different types of retirement plans and find the one (or combination!) that works best for your goals. Let’s dive into why an IRA could be a good portfolio add, even if you already have a 401(k).

1. You are maxing out your 401(k) and want to save more.

If this is you, huge congrats on maxing out your yearly 401(k) contributions! The maximum you can contribute to a 401(k) is $22,500 for 2023 ($20,500 for 2022). If you're 50 or older, you can make catch-up contributions, up to an additional $7,500 ($6,500 in 2022), so that’s a nice chunk of money to sock away.

If you want to set aside more money for your retirement, setting up an IRA in addition to your 401(k) could make a lot of sense.

The total contributions you can put into all of your traditional and Roth IRA accounts for 2023 is $6,500 (or $7,500 if your're aged 50 or older). For 2022, the maximum contribution limit is $6,000 (or $7,000 if you're age 50 or older).

By the way, if you have your own business on the side in addition to your regular employment, you might want to check out a SEP IRA, a retirement account primarily used by small business owners and self-employed workers. You can learn more about SEP IRAs and the potential benefits here.

Note: If you have a traditional IRA, your ability to deduct contributions to that account from your taxes will depend on your income and filing status. Check out the IRS website here for specifics or consult with a tax professional if you have questions.